Tax changes force accounting charge

The Warehouse said its net profit after tax in the year to August 1, 2010 will be reduced by a $23 million accounting item relating to government tax changes.

The deferred tax liability adjustment is a one-off, non-cash accounting entry which has no impact on underlying profitability, cash flows or dividend policy.

A number of companies have already disclosed similar deferred tax liabilities and more are expected to follow.

The liabilities are the subject of a debate in the accounting profession and result from New Zealand equivalent to International Accounting Standard 12, which apply a balance sheet approach to accounting.

The Government is cutting the corporate tax rate from 30 percent to 28 percent and is removing an ability to depreciate buildings for tax purposes.

The deferred tax liability represents the value of tax payments foregone as a result of the changes. In relation to the depreciation tax change, the deferred tax liability is the value the future tax deductions which are no longer available.

The liability reduces slowly over time as the assets depreciate in value and a tax expense is not taken.

- NZPA