Canterbury Earthquake Tax Changes

The recent Taxation (Tax Administration and Remedial Matters) Act 2011 covers both guidance and relief to those who have lost their property in the Canterbury earthquakes and aftershocks.

Applying to both the Canterbury earthquakes and future events, it clarifies:

• The timing of when loss of profits insurance payouts become assessable for income tax – the earlier of payment made or a reasonable estimation of the claim.
• The timing of when the actual disposal of the asset for depreciation purposes – changed from the date of the event, to the date when the payment of insurance proceeds can be reasonably estimated.

Applying only to the Canterbury earthquakes and aftershocks, the Act approved the rollover of depreciation recovery on assets destroyed. This provision covers plant and equipment, fixtures and fittings, leasehold alterations and buildings.

Previously, there would have been a tax cost to the owner on the difference between the book value of the asset, and the net proceeds from insurance, where the insurance proceeds were effectively treated as the sale price of the asset. Property owners in this specific case are able to apply the difference over the replaced assets within CERA’s jurisdiction and certain timeframes and other criteria are met.

Please contact your Polson Higgs advisor if you have any questions.

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