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Inland Revenue

Tax Policy

PUBLISHED 26 May 2003

Government to close "masthead" loophole

The government will close a tax loophole involving sale and leaseback transactions that allow tax deductions for what are effectively repayments of principal, Revenue Minister Michael Cullen announced today. The new law will not be applied retrospectively to deductions already taken, but will apply to payments made or expenses incurred after it comes into effect. For more information see the government's media statement.

Hon Dr Michael Cullen
Minister of Revenue


Fairfax decision welcome but govt will still act

Revenue Minister Michael Cullen today welcomed the announcement by John Fairfax Holdings that it will not pursue a tax arrangement which could have created a significant hole in New Zealand's tax base but emphasised that the government would still move to close the tax loophole.

"The Fairfax decision reflects well on the company and will not affect its proposed acquisition of INL's New Zealand newspapers," he said.

"But clearly I cannot allow the risk to the revenue to remain.

"The government intends to ensure that taxpayers entering into financing transactions cannot take deductions for what are in substance repayments of principal.

"The detail of the change is still being worked through but it will not be applied retrospectively to deductions already taken.

"I want to make it clear, however, that it will capture existing arrangements as it will apply to any payments made or expenses incurred from the application date specified in the new law.

"Such an amendment would not affect normal sale and leaseback transactions which are entered into for commercial reasons. It is perfectly acceptable and common for companies wishing to free up cash to sell assets and lease them back in return for normal lease fees.

"The problem arises when sale and leaseback transactions allow tax deductions for, in effect, repayments of principal," Dr Cullen said.

Contact: Patricia Herbert [press secretary] 04-471-9412 or 021-270-9013. E-mail [email protected]

Technical inquiries to Helen Mackenzie [Dr Cullen's tax advisor] 04-471-9728 or 021-270-9052