OK, we will go with this as the explanation for now, and I will see if I can understand the process.
Note 9 from AR2023.
Investment Property Balance @ 31-12-2023 |
$37.376m |
less depreciation charge for FY2021 |
$0.071m |
less depreciation charge for FY2022 |
$0.538m |
less depreciation charge for FY2023 |
$0.933m |
equals Carrying Value of Investment Property |
$35.834m |
That is not the complete story, because it is only the depreciation of the structural elements of buildings that has been stopped. Depreciation of, for example, of built in fittings like air conditioning systems ('Building Services') or floor coverings ('Building Surfaces and Finishes') is still allowed (see AR2023 p38). However, for the purpose of this reply, and not drawing attention away from the main point being discussed, I will ignore this and go with your definition of depreciation, meaning 'no depreciation on buildings is allowed'
...which is 50 years (AR2023 p38). If we take the FY2023 building depreciation charge ($0.933m) and multiply that by 50 (I am assuming straight line depreciation over 50 years here) then I get: 50 x $0.933m = $46.65m. This number is greater than the un-depreciated book value of the assets - $37.376m - because IFRS16 tends to 'front load' depreciation into the early years. An alternative, pre IFRS16, straight line linear depreciation charge would have been $37.376m/50= $0.748m (based on declared asset values.)
The issue here is that the withdrawal of the ability to claim depreciation on buildings is an IRD directive, not an accounting standard reporting directive. So when you say that the $4m one off charge which
"arises from the creation of a deferred tax liability (which hits the P&L in the form of tax expense)."
how can there be a deferred tax liability because of this? The reporting period for IFRS standard accounting and IRD tax accounting are still exactly the same as they were before the depreciation law change. There is no time shifting of tax here is there? It is only the amount of income tax taken that will increase in subsequent years.
What deferred tax liability (I am still doubting where it has come from)?
How can you say that 'disallowing depreciation'/'increasing IRD profits'/'increasing tax due to the IRD' has no effect on the profit and loss in the future? If there was no P&L effect from changing the tax law, then why did the National lead government even bother to change the tax law? The purpose of changing the tax law was to rake in more tax from these property owning entities, was it not?
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