I am investigating how the mooted change in depreciation deductibility might affect earnings of VHP going forwards. So far I am not having much luck. There is no quantification of how depreciation affects the FY2023 or FY2022 annual results that I can find. Of course much of the VHP portfolio is in Australia. Income from that source is beyond the reach of any future New Zealand National or Labour lead governments 'denial of depreciation' rights.
p82 of AR2023 has this to say about tax rates:
"The Group is subject to New Zealand tax on assessable income, including assessable Foreign Investment Fund ("FIF") income attributed from its Australian subsidiaries (applying either the Fair Dividend Rate ("FDR") method or the attributable FIF method), at a rate of 28%. Its Australian subsidiaries are subject to Australian withholding tax on assessable income at a rate of 10% for interest income or 15% for 'fund payment' amounts as they are Australian Managed Investment Trusts (MIT), for which a New Zealand tax credit is generally available."
I was a little surprised to see mention of FIF income treatment in relation to the Australian property portfolio. This would indicate that the Australian property portfolio does not have a franking credit account, a situation that I find odd. Perhaps the Australian MIT structure that holds VHP's Australian assets has something to do with this. Anyone know?
In any event, a change in depreciation deductibility for income tax purposes would only affect the NZ property holdings. As of EOFY2023,(AR2023 p81) these earnings only represented:
$949.378m / $3,288.356m =28.9% of all managed property assets
It is interesting that in AR2023, the word 'depreciation' is only printed twice, with both of those mentions being in the same sentence on p84:
"Deferred tax on depreciation: Deferred tax is provided for in respect of New Zealand properties for the depreciation expected to be recovered on the sale of investment property."
This got me thinking. If there is no depreciation allowed on NZ commercial buildings, does that mean there will be no 'depreciation recovered' tax to pay on the selling down of parts of the NZ portfolio in the future? I imagine that any depreciation claimed under older income tax rules might still be recovered and taxed under a depreciation regime in NZ that no longer allows commercial building depreciation as a legitimate expense. Anyone know?
SNOOPY