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Income Tax Act 2007

Income - Terminating provisions

CZ 25B: Land and buildings as revenue account property affected by Hurunui/Kaikōura earthquakes and replaced—insurance or compensation

You could also call this:

“Tax relief for replacing earthquake-damaged property with insurance money”

This section talks about what happens if you own land or buildings that were damaged by the Hurunui/Kaikōura earthquakes. If you’re making money from these properties and you get insurance money or compensation for the damage, you might not have to pay tax on all of it right away.

You can use this rule if your buildings were so badly damaged that you had to knock them down or abandon them. It only applies to income years before 2024-25.

If you plan to buy new property to replace what was damaged, you can delay paying tax on some of the insurance money. The new property needs to be in the same earthquake-affected area and you need to buy it by the end of the 2023-24 income year.

You’ll need to tell the tax department if you want to use this rule. You’ll have to give them details about the damaged property, the new property you’re buying, and how much money you’re holding onto.

If you decide not to replace the property, if you go bankrupt, or by the end of the 2023-24 income year, you’ll have to pay tax on the insurance money you held onto.

This rule is designed to help people who lost property in the earthquakes to rebuild without having to pay a lot of tax upfront.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=LMS177217.

Topics:
Money and consumer rights > Taxes
Housing and property > Buying and selling homes
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CZ 25: Land and buildings as revenue account property affected by Canterbury earthquakes and replaced—insurance or compensation, Government purchase, or

“Tax rules for replacing earthquake-damaged business property in Canterbury”

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CZ 25C: Land or buildings as revenue account property affected by North Island flooding events and replaced—insurance or compensation, or

“Tax relief for flood-damaged property replaced with insurance money”

Part C Income
Terminating provisions

CZ 25BLand and buildings as revenue account property affected by Hurunui/Kaikōura earthquakes and replaced—insurance or compensation

  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, derives for buildings or land (the affected property), all of which is revenue account property, insurance or compensation, if a Hurunui/Kaikōura earthquake as that term is defined in section 4 of the Hurunui/Kaikōura Earthquakes Recovery Act 2016 damages the land and damages each building, or the neighbourhood of the building, causing the building to be useless for the purpose of deriving income and consequently to be demolished or abandoned for later demolition; and
    1. in the absence of this section, would have in or before the current year a total amount of income (the insurance income) under sections CB 6, CB 7, CB 12, CB 13, and CG 6 (which relate to income from certain disposals of land and from compensation for trading stock) from the compensation or insurance for the affected property that exceeds the total amount of deductions under sections DB 23 and DB 27 (which relate to deductions for the cost or value of land) for the affected property; and
      1. plans, in the current year, to acquire property (the replacement property)—
        1. replacing affected property; and
          1. meeting the requirements of subsection (4); and
            1. having a cost exceeding the total amount of deductions under sections DB 23 and DB 27 for the affected property; and
            2. notifies the Commissioner under subsection (6) in relation to the affected property.

              1. The amount (the excess recovery) by which the insurance income referred to in subsection (1)(b) exceeds the deductions referred to in subsection (1)(b) is not income of the person except to the extent of the amount (the suspended recovery income) remaining after adjustment under subsection (3) that is attributed to an income year by subsection (5).

              2. If the person incurs expenditure (the replacement cost) to acquire replacement property,—

              3. for the purposes of determining the value of the replacement property for section EA 2 (Other revenue account property), the amount of the person’s expenditure on the replacement property is reduced by—
                1. the amount calculated by dividing the replacement cost by the total amount of deductions under sections DB 23 and DB 27 for the affected property and multiplying the result by the excess of the insurance income over the replacement cost, if the insurance income exceeds the replacement cost and the calculated amount is less than or equal to the amount of insurance income; or
                  1. the amount of the excess recovery, if the insurance income does not exceed the replacement cost or is less than the amount calculated in subparagraph (i); and
                  2. the amount of the suspended recovery income immediately before the expenditure is reduced by an amount equal to the reduction of expenditure under paragraph (a) for the purposes of section EA 2.

                    1. For an item of affected property, replacement property must be a building or land that is revenue account property—

                    2. acquired in or before the person’s 2023–24 income year; and
                      1. located in the earthquake-affected area as that term is defined in section 4 of the Hurunui/Kaikōura Earthquakes Recovery Act 2016, relating to—
                        1. the Canterbury Regional Council (Environment Canterbury), the Hurunui District Council, the Kaikoura District Council, or the Marlborough District Council, if the affected property is located in an earthquake-affected area relating to 1 of those councils; or
                          1. the Wellington City Council, the Hutt City Council, or the Wellington Regional Council (Greater Wellington), if the affected property is located in an earthquake-affected area relating to 1 of those councils.

                          2. The person has an amount of income for the affected property in the current year equal to the amount of suspended recovery income when—

                          3. the current year ends, if the current year is the 2023–24 income year:
                            1. in the current year, the person decides not to replace the affected property:
                              1. in the current year, the person goes into liquidation or becomes bankrupt.

                                1. A person choosing to rely on this section to suspend in a current year the recognition of suspended recovery income from the insurance for affected property must notify the Commissioner.

                                2. A notice under subsection (6) must—

                                3. describe the affected property; and
                                  1. give details of replacement property acquired in the current year to replace, in full or in part, the affected property; and
                                    1. give the cost of the replacement property and the reduction under subsection (3) of that cost for the purposes of section EA 2; and
                                      1. give the amount, for the affected property, of the income from insurance or compensation remaining suspended under this section at the end of the current year.

                                        1. This section overrides section CG 6.

                                        Notes
                                        • Section CZ 25B: inserted (with effect on 30 March 2017), on , by section 148(1) (and see section 148(2) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).