Tax treatment of operating leases

The Government has agreed to proposed changes that would allow taxpayers who apply the New Zealand Equivalent to International Financial Reporting Standard 16 Leases (IFRS 16) to follow their accounting treatment to claim tax deductions on certain leases that are classified as tax operating leases. The proposed changes are in response to taxpayers’ requests for a closer alignment between the tax and accounting treatment of tax operating leases to simplify compliance.

It is intended that the proposed changes would apply only for the person using the asset (the lessee), not the person supplying the asset (the lessor). It would apply only to certain tax operating leases, with some exceptions where the existing treatment is intended to continue. The proposed changes would not affect the boundary between tax operating and finance leases.

The proposed changes will be included in a tax bill planned for introduction early in 2020. They would apply to taxpayers with IFRS reporting obligations for income years starting on or after 1 January 2019, to align with the commencement of IFRS 16.

For more information see the fact sheet and supporting information.