EZ 23BBInterest in property acquired after depreciable property affected by Canterbury earthquakes

1. This section applies for a person and an income year (the current year) before the 2024–25 income year when the person,—

2. in or before the current year, receives insurance or compensation (the earthquake compensation) for items of depreciable property (the affected property), each of which is—
   1. not depreciable intangible property; and
   2. not property for which the person uses the pool method; and
   3. included in 1 of the categories (an affected class) of the person's depreciable property referred to in subsection (11)(b); and
   4. not linked with replacement property under section EZ 23B or has a link with replacement property that may be removed under section EZ 23B(11B); and
3. is entitled to the earthquake compensation because each item of the affected property, as a result of a Canterbury earthquake as that term is defined in section 4 of the Canterbury Earthquake Recovery Act 2011, is affected by—
   1. damage meeting the requirements of section EE 47(4) (Events for purposes of section EE 44); or
   2. a disposal and reacquisition under section EZ 23C or EZ 70; and
4. would have, in the absence of this section, from the earthquake compensation for the affected class, depreciation recovery income under section EE 48 (Effect of disposal or event) in or before the current year; and
5. has a total amount of depreciation loss under section EE 48 for the affected class that, treated as a positive amount, is less than the total amount of depreciation recovery income referred to in paragraph (c) by an amount (the excess recovery); and
6. has in the current year an interest (a replacement interest) in a voting interest in a company (the owning company) having the purpose of acquiring depreciable property (the replacement property) meeting the requirements of subsection (6); and
7. holds the voting interest in the owning company or is the settlor of a trust of which the trustee holds the voting interest; and
8. notifies the Commissioner under subsection (10).

9. For a replacement interest, the amount that may be depreciation recovery income of the person in or after the current year (the suspended recovery income) is the excess recovery, for the affected property with which the replacement interest is linked under subsections (10) and (11), that remains at the beginning of the current year after—

10. adjustment under subsections (3), (8), and (9) for an earlier income year; and
11. attribution to an earlier income year by subsections (8) to (10).

12. If the person acquires a replacement interest and links the replacement interest with an affected class, the amount calculated using the formula in subsection (4)—

13. is an amount of suspended recovery income for the replacement interest; and
14. is a reduction in the amount of the depreciation recovery income for the affected class.

15. The amount under subsection (3)(a) and (b) for a replacement interest and affected class is—

16. zero, if the cost of the affected property in the affected class equals or is less than the total of the fractional interest values for other replacement interests acquired by the person before the replacement interest; or
17. the amount calculated using the formula—

18. In the formula,—

19. limited replacement cost is the lesser of—
    1. the fractional interest value of the replacement interest:
    2. the amount by which the total cost for the person of the affected property in the affected class exceeds the total amount of the fractional interest values of other replacement interests acquired by the person before the replacement interest:
20. excess is the excess recovery for the affected class:
21. affected cost is the total cost for the person of the affected property in the affected class.

22. An item of replacement property for a person or owning company must—

23. be included in the same category under subsection (11)(b) as the affected class with which the person links the item, if the affected class is described in subsection (11)(b)(i) or (ii); and
24. be located in greater Christchurch as that term is defined in section 4 of the Canterbury Earthquake Recovery Act 2011, if the item is a building or commercial fit-out.

25. The amount of suspended recovery income for a person's replacement interest is not depreciation recovery income for the person arising from the replacement interest unless it is attributed to an income year by subsections (8) and (9).

26. If the owning company in which a person has a replacement interest disposes of the replacement property in an income year, and subsection (9) does not apply earlier,—

27. the person has, in the income year for the replacement interest, an amount of depreciation recovery income equal to the fractional interest value of the replacement interest calculated under subsection (12); and
28. the suspended recovery income for the replacement interest is reduced by the amount referred to in paragraph (a).

29. The person has, in an income year, an amount of depreciation recovery income equal to the suspended recovery income for a replacement interest and affected property, and the suspended recovery income for the replacement interest and affected property is reduced to zero,—

30. at the end of the income year, if—
    1. the income year is the 2023–24 income year; and
    2. the owning company does not acquire the replacement property relating to the replacement interest and the affected property before the end of the income year; and
    3. neither of paragraphs (b) and (c) apply earlier; or
31. when in the income year the person disposes of the replacement interest, if neither of paragraphs (a) and (c) apply earlier; or
32. when in the income year the person goes into liquidation or becomes bankrupt, if neither of paragraphs (a) and (b) apply earlier.

33. A person choosing to rely on this section to suspend in a current year the recognition of suspended recovery income from earthquake compensation must give notice under this section, or under section EZ 23B for years before the current year, to the Commissioner—

34. for the earliest income year (the estimate year) in which the amount of the earthquake compensation for the affected property can be reasonably estimated, by the later of 31 January 2012 and the date on which the return of income is filed for the estimate year; and
35. if the current year is after the estimate year,—
    1. for each income year between the estimate year and the current year, by the date on which the return of income is filed for that income year; and
    2. for the current year, by the date on which the return of income is filed for the current year.

36. A notice under subsection (10) for the current year must—

37. describe the affected property; and
38. indicate in which of the following categories each item of affected property is included:
    1. a building:
    2. commercial fit-out:
    3. depreciable property not referred to in subparagraphs (i) and (ii); and
39. indicate which items of affected property were linked with replacement property under section EZ 23B before the current year; and
40. give details of each item of replacement property in which a replacement interest is held in the current year, and the affected class to which the person is linking the replacement interest; and
41. for each replacement interest held in the current year, give the amount of the expenditure by the owning company on the replacement property, the shareholding of the person's holding entity in the owning company, and the shareholding of the person in, or the fraction of the trust corpus that has been settled by the person on, the person's holding entity; and
42. for each category of replacement property, give the amount of the suspended recovery income at the end of the current year; and
43. for each category of replacement property, give the amount of depreciation recovery income for the current year.

44. For a person with a replacement interest in replacement property, the fractional interest value of the replacement interest for the purposes of this section is the value calculated using the formula—

    $person’s\; fractional\; interest\; \times \; replacement\; expenditure.$

    Where:

45. In the formula,—

46. person's fractional interest is—
    1. the voting interest of the person in the owning company; or
    2. the fraction calculated by multiplying the voting interest in the owning company held by the trustee of a trust of which the person is a settlor by the fraction of the trust corpus that has been settled by the person:
47. replacement expenditure is the amount of the expenditure by the owning company on the replacement property.

48. If items of replacement property are acquired at the same time and the effect of this section depends on the order in which the items are acquired, the items are treated as being acquired in the order chosen by the person in the first return of income for which the order of acquisition is taken into account.

49. This section overrides subpart EE (Depreciation).

Notes

• Section EZ 23BB: inserted (with effect on 4 September 2010), on 27 February 2014, by section 65 of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
• Section EZ 23BB(1): amended (with effect on 4 September 2010), on 18 March 2019, by section 185(1) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
• Section EZ 23BB(1)(g): amended, on 2 June 2016, by section 42(1) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
• Section EZ 23BB(9)(a)(i): amended (with effect on 4 September 2010), on 18 March 2019, by section 185(2) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
• Section EZ 23BB(10): amended, on 2 June 2016, by section 42(2) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
• Section EZ 23BB(11)(b)(i): amended (with effect on 1 April 2020), on 30 March 2022, by section 99(1) (and see section 99(3) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
• Section EZ 23BB list of defined terms grandparented structure: repealed (with effect on 1 April 2020), on 30 March 2022, by section 99(2) (and see section 99(3) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
• Section EZ 23BB list of defined terms notify: inserted, on 2 June 2016, by section 42(3) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
• Section EZ 23BB list of defined terms settlor: inserted, on 24 February 2016, by section 243 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).