Summary of Changes to Tax Legislation

The Government has passed legislation introducing several tax relief measures to help Christchurch residents and businesses trying to get back on their feet after last month’s earthquake. We have included a summary of these measures below, for more detailed information please check http://taxpolicy.ird.govt.nz/publications/2011-sr-earthquake-bill/overview

These Measures Include:

An Exemption from Tax and Gift Duty for Donated Trading Stock

Where businesses have donated trading stock (or supplied it for less than market value) within 4 months of the earthquake for the purpose of alleviating the effects of the earthquake, a new exclusion provides that only the value of the actual consideration, if any, received will need to be returned as income by the business.  Without this exemption, businesses would be taxed on a deemed profit based on the market value of any donated goods. Please note that to qualify, trading stock must meet certain criteria.

Where the exclusion applies, a new exemption from gift duty will also be legislated for with retrospective effect.  Where the disposal is to non-associated persons there are no GST implications beyond dealing with the GST fraction of any consideration received or paid.

An Exemption from Tax on Welfare Contributions by Employers

Some employers have provided a range of welfare benefits to their employees, ordinarily, these benefits could be taxable. An exemption has been established for specified welfare contributions of cash and benefits, including accommodation, provided by employers to their employees for the purpose of alleviating the effects of the earthquakes on employees. This applies to either the 4 September 2010 or the 22 February 2011 Christchurch earthquakes where cash and benefits are provided within eight weeks of each of the earthquakes.  Please note that to qualify payments must meet certain criteria.

Exempting certain payments made to families who receive Working for Families tax credits from counting as income.

The "other payments" category in the definition of "family scheme income" has been amended to ensure payments given to support people affected by events such as the Canterbury earthquakes in September 2010 and February 2011, and other similar events in the future, are excluded from the definition of family scheme income for up to 12 months. This amendment will ensure that the recipient’s entitlements to various benefits including WFF tax credits will not be affected.

Extending the redundancy tax credit.

The redundancy tax credit was repealed in the 2010 Budget but will now be extended to 30 September 2011 where jobs are lost because of the earthquake. The credit seeks to rectify the situation where a person made redundant, is taxed at a higher rate because their redundancy payment puts them into a higher tax bracket.
 

When will the Legislation be enacted?

The changes relating to donated trading stock, the redundancy tax credit, employer welfare payments and family scheme income were made in the Taxation (Canterbury Earthquake Measures) Act 2011 which was enacted on 24 May 2011. The legislation amending the depreciation rules (discussed in another item on this website - click here) has not yet been enacted it is expect to be passed in early August 2011.

Extension of Tax Dates

Please also note that the Commissioner of Inland Revenue has been granted the discretion to extend statutory tax dates on a case or class-of-cases basis. A time limit for tax obligations can be extended if you are unable to comply with the limit because of the Canterbury Earthquake of 4 September 2010 or any of its aftershocks (including the one on 22 February); and it would be fair and equitable to extend the limit in the circumstances.

Please contact your local Polson Higgs Tax partner for further advice and information on how we can help you.