Changes proposed to depreciation rules to assist Christchurch businesses
Revenue Minister Peter Dunne has announced proposed changes to depreciation rules aimed at giving Christchurch businesses further tax relief, but with two of the measures to be extended to general tax law.
He says Cabinet has agreed to three proposed changes in the rules for the tax treatment of depreciation, specifically around rollover relief, timing of deemed sales of destroyed insured assets, and losses on buildings.
Mr Dunne says that under normal tax laws, when the insurance proceeds of a destroyed asset exceed the tax book value of the asset the owner is taxed on depreciation recovered. (This is because too much depreciation has been claimed in the past and is often the result when destroyed assets are insured for replacement value).
Rollover relief will be allowed for buildings replaced with buildings within the zone under Canterbury Earthquake Recovery Authority responsibility.
Similar rules will apply for insurance proceeds on buildings held on “revenue account” so long as the replacement building is in the zone.
Rollover relief will also be allowed for plant and equipment replaced with other plant and equipment, with no restriction on where in New Zealand the replacement asset is located.
Mr Dunne says a key factor of the changes is the allowing of a five-year period for acquiring replacement assets.
Cabinet has also agreed to extend existing legislation for the write-off of buildings destroyed by an event beyond the owner’s control.
“Current legislation allows a write-off when a building is destroyed by an event such as an earthquake, but no deduction is allowed if it is destroyed because of an event, for instance, in a situation where it is demolished to allow a neighbouring building to be properly demolished,” Mr Dunne says.
The rollover relief is limited to assets destroyed as a result of the Canterbury earthquake and aftershocks. The other two measures – timing of deemed sales of destroyed insured assets, and losses on buildings – are improvements to general tax law and will be available to all taxpayers.
“We are introducing these measures because the current tax rules on depreciation in this situation would hinder recovery and growth,” Mr Dunne says.
The new depreciation rules are expected to be enacted around July.