By Hayes Knight – 13 April 2011

Revenue Minister Peter Dunne has announced three proposed changes to depreciation rules aimed at giving Christchurch businesses further tax relief, with two of the measures to be extended to general tax law. The three proposed changes in the depreciation rules are rollover relief, timing of deemed sales of destroyed insured assets, and losses on buildings.

Rollover relief

Currently, when the insurance proceeds of a destroyed asset exceed the tax book value of the asset the owner is taxed on depreciation recovered.  It is proposed that taxpayers can elect to roll qualifying depreciation recovered over into the tax value of the replacement asset.

The rollover relief will be allowed for replacement buildings located within the zone under Canterbury Earthquake Recovery Authority responsibility.

The 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.

Timing of deemed sales

At present an insured asset is deemed to have been sold when it is destroyed.  It is proposed that the time of sale be deemed to be the point when the insurance proceeds can be reasonably estimated.

This proposal is likely to be effective from 4 September 2010 and will be a general amendment to the depreciation rules and will therefore not be limited to just the Canterbury earthquakes.

Losses on buildings

Current legislation allows a write-off when a building is destroyed by an event beyond the owner’s control, such as an earthquake or flood.  It is proposed to extend this legislation for the write-off of buildings that have to be destroyed as a result of such an event (ie, where a building is demolished to allow a neighbouring building to be properly demolished, or to allow land underneath to be remediated).

This proposal is likely to be effective from 4 September 2010 and will be a general amendment to the depreciation rules and will therefore not be limited to just the Canterbury earthquakes.

For further information refer to Policy Advice Division’s Fact Sheet http://taxpolicy.ird.govt.nz/publications/2011-other-earthquake-depreciation-issues-fact-sheet/overview