WELLINGTON: New Zealand’s tax agency has announced tax relief measures for those affected by the Kaikoura earthquake.
The change provides for tax deferral for depreciation recovered taxable income – income that will arise for taxpayers who receive compensation and insurance payouts to fully pay for the cost of replacing older plant, equipment, and certain other assets that are beyond repair or would be uneconomic to repair as a result of damage caused by the Kaikoura earthquake (which affected businesses in the Hurunui, Kaikoura, and Wellington areas).
It will allow taxpayers affected by the earthquakes to defer so-called “depreciation recovery income,” which would otherwise be subject to tax in the relevant tax year. This income arises as a result of the disposal of written-off assets, which have been deemed to have depreciated for tax purposes, and their replacement with assets exceeding their book value.
The Inland Revenue explained: “In most circumstances, when you dispose of a depreciable asset, if the disposal amount on that asset is more than the adjusted tax value (book value) of the asset the excess (depreciation recovered) is generally treated as income for tax purposes.”
“The earthquake relief provisions mean you can delay including the excess as income in your tax returns, when insurance or compensation payments are more than the book value of the affected asset(s).”
The tax agency’s guidance – Kaikoura earthquakes relief provisions for depreciation recovery income – set out the conditions to obtain the relief in detail.
