Adopting NZ IFRS: some tax consequences

Niels Campbell, Bell Gully Tax Newsletter, March 2005

While companies have been able to adopt International Financial Reporting Standards (IFRS) voluntarily since 1 January 2005, adoption will become mandatory in 2007 for all reporting entities. In this article, some of the consequences for income tax and dealings with the IRD are examined.

Much has been written about the accounting, reporting and capital-raising effects of adopting NZ IFRS. Although you could be forgiven for thinking that NZ IFRS adoption will have little impact on tax law, specific areas of income tax do stray into the accounting measurement area and are worth considering.

This article discusses certain tax implications of adopting NZ IFRS. In particular, the article explains:

1. the potential for foreign-controlled companies to be denied interest deductions under New Zealand's thin capitalisation rules due to the change in accounting values; and



2. the benefits of making balance sheet provisions for tax that include at-risk tax positions as contingent liabilities (rather than actual liabilities) or filing on a conservative basis with adjustments to be notified later.

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