Update on New Zealand deferred tax issue

  • New Zealand Image

19 Aug 2010

We posted an earlier story regarding issues arising in New Zealand related to deferred tax accounting for certain buildings for which tax depreciation had been removed by a tax law change. The effect of the tax law change is resulting in many New Zealand companies recognising a deferred tax liability in respect of existing buildings, significantly impacting profits. These issues are related to the IASB's current consideration of an exemption to the principles of IAS 12 Income Taxes for certain revalued assets.

The New Zealand Financial Reporting Standards Board (FRSB) recently held a meeting where the issue was further discussed. The FRSB considered, but ultimately rejected, a proposal to modify the New Zealand equivalent of IAS 12 to permit an exemption from the recognition of deferred taxes on affected buildings. This decision was communicated to the New Zealand Accounting Standards Review Board (ASRB) and an updated Communiqué was issued on 18 August 2010 confirming that deferred tax should be recognised in many instances.

In respect of a possible departure from IFRSs, the Communiqué states:

...this would mean that NZ IFRS is no longer aligned with IFRS, and so the financial statements for profit-oriented entities would not comply with both local and international accounting standards - thereby undermining the fundamental objective of New Zealand's adoption of IFRS.

Therefore, while the Boards acknowledge the serious concerns that have been raised about the accounting impact of the recent tax changes for entities to comply with NZ IAS 12, the suggestion to make changes to (or provide exemptions from) the standard is not a viable solution, both because of time constraints and the wider implications for the New Zealand financial reporting framework.

Click for:

Related Topics

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.