Tax relief announced for North Island businesses affected by weather events
Tax relief announced for North Island businesses affected by weather events | Insurance Business New Zealand
Catastrophe & Flood
Tax relief announced for North Island businesses affected by weather events
“A tax bill is the last thing needed by businesses struggling to get back on their feet”
Catastrophe & Flood
By
Kenneth Araullo
Minister of revenue David Parker announced that North Island businesses affected by the recent extreme weather events will not have to pay tax on insurance or compensation that they might receive for their damages.
While such payouts could result in taxable income, Parker said that “a tax bill is the last thing needed by businesses struggling to get back on their feet.”
“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,” Parker said in a news release.
Rollover relief means that insured businesses can maximize the use of their payouts to replace their damaged assets, as opposed to having them reduced by a tax bill. Parker said that the cost of the replacement asset would then be adjusted for tax purposes to reflect the tax deferral.
Similarities to Canterbury earthquake proceedings
Usually, an insurance payout means an equivalent depreciation recovery income for a destroyed business asset. Using rollover relief, the recognition of this income will be deferred for tax purposes if there is a commitment to rebuild or replace the destroyed buildings or assets.
A similar tax relief was provided during the Canterbury and Hurunui-Kaikoura earthquakes, although Parker said that the floods in North Island constitute a somewhat different situation as managed retreat is being considered. A proposed key difference, he said, is that there would be no requirement to rebuild in the same region due to the possibility of the area being vulnerable to future weather events.
“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,” Parker said.
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