Skip to main content
Inland Revenue

Tax Policy

Chapter 2 - Background

2.1 In July 2012, an officials’ issues paper, The taxation of lease inducement payments, was released, seeking feedback on proposals to deal with revenue risks associated with the tax treatment of lease inducement payments. The tax treatment of generally deductible but non-taxable lease inducement payments created an opportunity for taxpayers to substitute tax deductible rent payments with non-taxable cash lease inducement payments.

2.2 During public consultation on the proposals, concerns around another type of land-related lease payment – lease surrender payments – were raised. Lease surrender payments are regarded as “black hole” expenditure (non-deductible business expenditure) to a commercial tenant when they are made to a landlord.

2.3 Supplementary Order Paper No. 167 to the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Bill released on 11 December 2012 proposed changes to both lease inducement and lease surrender payments.[2] If implemented, these payments will be treated as taxable to the recipient and deductible to the payer under the Income Tax Act 2007, effective from 1 April 2013. Generally, income and expenditure derived or incurred on these payments would be spread over the term of a lease.

2.4 When the lease inducement and lease surrender payments reforms were added to the bill, the Government stated that there would be a further review of the tax treatment of other land-related lease payments, such as lease transfer payments.

2.5 This issues paper considers the overall income tax treatment of land-related lease payments. The objective of this review is to provide a consistent and coherent tax treatment of land-related lease payments that is aligned with New Zealand’s broad-base, low-rate tax framework. The paper therefore suggests further reforms to the tax treatment of land-related lease payments to deal with aspects that distort business decisions. This will improve business efficiency and bring greater fairness to the tax rules.


2 This bill is currently before Parliament.