The New Zealand Government has announced plans to grant tax relief to North Island businesses affected by the catastrophic flood event earlier this year in late January. 
 
Legislation will be introduced later this month to pave the way for the proposed relief measure, Minister of Revenue and Associate Minister of Finance David Parker says. 
 
If the legislation is passed it means affected businesses will not have to pay tax on insurance or compensation they might receive for their damaged buildings, plant and equipment. Catastrophe firm Perils recently raised its loss estimate for the flood event to $NZ1.75 billion ($1.64 billion) from $NZ1.65 billion ($1.55 billion). 
 
“Normally, such payouts could result in taxable income, but a tax bill is the last thing needed by businesses struggling to get back on their feet,” Mr Parker, who is also Environment Minister and Attorney-General, said. 
 
“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.” 
 
He says the proposed rollover relief plan means that insured businesses can use their payouts to replace assets, rather than having them reduced by a tax bill. 
 
“The cost of the replacement asset would then be adjusted for tax purposes to reflect the tax deferral,” he said. 
 
In New Zealand normally the receipt of insurance proceeds for a destroyed business asset gives rise to depreciation recovery income. 
 
However, the proposed rollover relief mechanism will defer the recognition of this income for tax purposes, provided there is a commitment to rebuild or replace the destroyed buildings or plant. 
 
Similar tax relief was provided for assets destroyed by the Canterbury and Hurunui-Kaikoura earthquakes, although the recent North Island flooding events differ because managed retreat is being considered. 
 
“Because of that, a proposed key difference from the earthquake relief is that there would be no requirement that replacement buildings be located in the same region,” Mr Parker said. 
 
“These measures provide some relief for businesses that are insured or receive compensation payments.” 
 
He says 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.