Tax changes to help quake-hit businesses

The Government has announced proposed tax changes aimed at providing relief for quake-hit Christchurch businesses.

Cabinet agreed yesterday 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, Revenue Minister Peter Dunne said today.

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.

However, under the proposed changes, rollover relief will be allowed for buildings replaced in the area under the Canterbury Earthquake Recovery Authority's responsibility.

It will also be allowed for the replacement of plants and equipment.

Mr Dunne said a key change was allowing for a five-year period for acquiring replacement assets.

"This is to ensure that businesses can take the time they need to fully consider their position before they replace their assets," he said.

"This special one-off rule acknowledges the sheer size and impact of the Canterbury earthquakes.

"We do not believe that the Government should collect a windfall gain from depreciation recovered where taxpayers use their insurance proceeds to replace assets destroyed by the earthquakes."

The rollover relief was limited to assets destroyed as a result of the Canterbury earthquake and aftershocks, but two other proposed changes around the timing of deemed sales of destroyed insured assets and losses on buildings would be available to all taxpayers.

Mr Dunne said the timing of a deemed sale could have significant implications for businesses, particularly for assets destroyed in the earthquake where the value of the insurance proceeds might not be confirmed for some time.

"It is therefore proposed that the time of sale be deemed to be the point when the insurance proceeds can be reasonably estimated," he said.

Cabinet had 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."

The new depreciation rules are expected to be made law around July.