Tax relief for flood-hit North Island businesses
North Island businesses hit by recent flood damage will not have to pay tax on insurance or compensation they might receive for their damaged buildings, plant and equipment, Revenue Minister David Parker announced today.
“Normally, such payouts could result in taxable income, but a tax bill is the last thing needed by businesses struggling to get back on their feet,” David Parker said.
“Later this month, I will introduce legislation allowing rollover relief of tax liability for businesses in these situations. This will apply to assets replaced within the next five years.
“Rollover relief means that insured businesses can use their payouts to replace assets, rather than having them reduced by a tax bill. The cost of the replacement asset would then be adjusted for tax purposes to reflect the tax deferral,” David Parker said.
Normally, the receipt of insurance proceeds for a destroyed business asset gives rise to depreciation recovery income. Rollover relief will defer the recognition of this income for tax purposes, provided there is a commitment to rebuild or replace the destroyed buildings or plant.
Similar tax relief was provided for assets destroyed by the Canterbury and Hurunui-Kaikoura earthquakes, although the recent North Island flooding events differ because managed retreat is being considered.
“Because of that, a proposed key difference from the earthquake relief is that there would be no requirement that replacement buildings be located in the same region.
“These measures provide some relief for businesses that are insured or receive compensation payments. Farmers and horticulturalists whose crops are uninsured should be able to separately claim deductions under existing legislation for the residual book value of destroyed trees and vines, and their removal costs,” David Parker said.
Inland Revenue will provide information on its website about the rollover relief.