Farmers, growers and other businesses affected by recent cyclones will have one less thing to worry about after the government’s announcement on depreciation roll-over relief, Federated Farmers said.
National board member Toby Williams said the measures announced by Revenue Minister David Parker are a repeat of what the Feds advocated for in the wake of the Hurunui-Kaikoura earthquakes.
“We’re very pleased the government has seen fit to do the same for businesses hit by the severe weather events in January and February this year,” he said.
In 2011 the government amended the Income Tax Act to provide taxpayers whose property was damaged or destroyed by the Canterbury earthquakes with the ability to defer a depreciation recovery income liability when property was destroyed and replaced using insurance settlements.
Where a depreciated insured asset is destroyed there is often depreciation recovered, especially where the asset is insured for replacement cost. This depreciation recovered, which is taxable, is a reversal of depreciation previously claimed.
“For taxpayers affected by the Auckland storm and the two cyclones this could have resulted in a big tax liability, which is the last thing that hard-pressed farmers and other business owners need at the moment,” Williams said.
He said normally, the receipt of insurance proceeds for a destroyed business asset gives rise to depreciation recovery income. Rollover relief will defer the recognition of this income for tax purposes, provided there is a commitment to rebuild or replace the destroyed buildings or plant.
As an additional feature of the relief measures, Parker has proposed that there should be no requirement that replacement buildings be located in the same region.
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, Parker said.