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Income Tax Act 2007

Recharacterisation of certain transactions - Tax relief for emergencies

FP 4: Summary of property rollover relief provisions

You could also call this:

“Help with tax when you replace damaged things”

When you get money for something that was damaged in an emergency, you might have to pay tax on it. The law has rules to help you, which are explained in sections FP 5 to FP 12. These rules help you by delaying when you have to pay tax on the money you got.

The rules work by putting the extra money aside, and you can use it to reduce the cost of new things you buy to replace what was damaged. If you do not use all the money, or if you decide not to buy new things, you will have to pay tax on the leftover money. You will also have to pay tax on the leftover money if your business is closed or you go bankrupt.

The law has different rules for different types of things, like land, buildings, and other property. For example, when you replace damaged land or buildings, the money you put aside reduces the cost of the new land or buildings for tax purposes, as explained in section FP 7 and FP 11. When you sell the new land or buildings, the normal tax rules apply to the difference between the cost and the sale price.

The amount of money you put aside is reduced each time you buy something new to replace what was damaged. If you still have money put aside after a certain time, or if you decide not to buy anything else, you will have to pay tax on the remaining money. You can find more information about how this works in sections FP 5 to FP 12.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=LMS1432171.

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FP 5: Replacement property for land or buildings affected by emergency events, or

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Part F Recharacterisation of certain transactions
Tax relief for emergencies

FP 4Summary of property rollover relief provisions

  1. This section is intended to provide guidance on sections FP 5 to FP 12. If a conflict arises between this section and another provision of this subpart, that other provision prevails.

  2. Sections FP 5 to FP 12 are intended to defer any unanticipated tax liability arising from the receipt of compensation for certain assets destroyed by an emergency event. In general, the sections do this by suspending the recognition of the amount of that compensation as income that exceeds the cost of the assets and rolling it over to use it to reduce the acquisition cost of replacement property. Any amount unused at the end of the emergency event period will be income of the person at that time. The amount will also be income of the person if they decide not to acquire replacement property or they go into liquidation or become bankrupt before the end of the emergency event period.

  3. The definition of suspended recovery income differs depending on the type of property. For land and buildings under section FP 5, suspended recovery income is the amount by which the compensation for the damaged property exceeds the cost of the property. For depreciable property under section FP 8, suspended recovery income is the total depreciation recovery income for the affected class of depreciable property. This is the extent to which the compensation exceeds the adjusted tax value for each item of affected depreciable property in the class, capped at the amount of depreciation deductions claimed for the relevant item. For items when the compensation received is less than the adjusted tax value, the difference is deducted from the class total. For improvements to land under section FP 12, suspended recovery income is the amount of compensation that would have been income under section CG 4 (Receipts for expenditure or loss from insurance, indemnity, or otherwise), absent this subpart. Section CG 4 limits the amount of income to the deduction for the land improvement.

  4. Suspended recovery income is reduced when a person acquires replacement property. The reduction occurs each time an item is replaced. The amount that remains at the end of the income year that is 5 income years after the income year in which the emergency event first occurs, or at the point the person decides not to acquire any more replacement property, or goes into liquidation or becomes bankrupt, is income of the person.

  5. For land, buildings, and depreciable property, spent suspended recovery income reduces the cost of the replacement property for tax purposes (see sections FP 7 and FP 11). When the replacement property is subsequently disposed of, the extent to which the difference between the cost for tax purposes and the sale proceeds is taxable is determined by normal tax rules. For land improvements, the value attributed to the replacement is zero unless the replacement cost exceeds the amount of suspended recovery income, in which case the excess is attributed.

Notes
  • Section FP 4: inserted, on , by section 65 of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).