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Income Tax Act 2007

Income - Terminating provisions

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

You could also call this:

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

This law is about what happens when your land or buildings are damaged by flooding in the North Island. It applies if you were planning to sell the property for profit, but now you can’t because of the flood damage.

If you get insurance money or compensation for your damaged property, you might not have to pay tax on all of it right away. This is to help you if you want to buy a new property to replace the damaged one.

You can delay paying tax on some of the money if you plan to buy a replacement property. The replacement property needs to be in New Zealand and you have to buy it by the end of the 2027-2028 tax year.

The amount of tax you can delay paying depends on how much you spend on the new property. If you spend more on the new property than the old one was worth, you might not have to pay tax on any of the insurance money.

You need to tell the tax office (the Commissioner) if you want to use this rule. You have to do this by 30 April 2024 or when you file your tax return for the year you get the insurance money, whichever is later.

If you decide not to replace the property, or if you go bankrupt, you’ll have to pay tax on the money in that year. Also, if you haven’t used the money to buy a new property by the end of the 2027-2028 tax year, you’ll have to pay tax on it then.

This law overrides some other tax rules about selling property and getting insurance payouts.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=LMS952297.

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

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

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CZ 25D: Improvements to farmland and horticultural plants affected by North Island flooding events and replaced—insurance or compensation, or

“Rules for farmers and horticulturalists replacing flood-damaged property using insurance money”

Part C Income
Terminating provisions

CZ 25CLand or buildings as revenue account property affected by North Island flooding events and replaced—insurance or compensation

  1. This section applies for a person and an income year (the current year) before the 2028–29 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 under section CB 6, CB 7, CB 12, or CB 13 (which relate to income from certain disposals of land), insurance, a government or local authority buy-out or other compensation, or a combination of these, if a North Island flooding event damages the land or the 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 section CB 6, CB 7, CB 12, CB 13, or CG 6 (Receipts from insurance, indemnity, or compensation for trading stock) from the compensation or insurance for the affected property that exceeds the total amount of deductions under section DB 23 (Cost of revenue account property) 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 section DB 23 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 section DB 23 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 2027–28 income year; and
                      1. located in New Zealand.

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

                        2. the current year ends, if the current year is the 2027–28 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. by the later of 30 April 2024 and the date on which the return of income is filed for the earliest income year (the estimate year) in which the amount of the insurance for the affected property can be reasonably estimated; and
                                1. 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
                                    1. for the current year, by the date on which the return of income is filed for the current year.

                                    2. The Commissioner may allow the person to file the notice under subsection (6) at a later time if the Commissioner considers there are exceptional circumstances.

                                    3. A notice under subsection (6) must—

                                    4. 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 sections CB 6, CB 7, CB 12, CB 13, and CG 6.

                                            Notes
                                            • Section CZ 25C: inserted (with effect on 1 April 2022), on , by section 28(1) (and see section 28(2) for application) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).