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.
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