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Income Tax Act 2007

Income - Terminating provisions

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

You could also call this:

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

If you are a farmer or horticulturalist whose land improvements or plants were damaged by North Island flooding, this law applies to you before the 2028-29 tax year. It’s about how you handle insurance money for these damages.

You don’t have to count the insurance money as income right away if you plan to replace what was damaged. This applies if you’ve claimed tax deductions for the damaged property before and you tell the tax office about your plans.

If you spend less on replacing the property than you got from insurance, you might have to count some of the insurance money as income. The amount depends on how much you spend and what the original property cost.

When you buy replacement property, how much you can claim as an expense for tax purposes depends on how the replacement cost compares to your insurance money.

The replacement property must be a farm land improvement or a horticultural plant. You need to buy it by your 2027-28 tax year, and it must be in New Zealand.

You’ll have to count all the insurance money as income if you decide not to replace the property, if you go bankrupt, or by the end of the 2027-28 tax year if you haven’t replaced it by then.

You must tell the tax office about your plans by 30 April 2024 or when you file your tax return for the year you can estimate the insurance amount, whichever is later. You need to keep updating the tax office each year until you replace the property.

Your notice to the tax office needs to describe the damaged property, give details about what you’re replacing it with, how much it costs, and how much of the insurance money is still set aside for replacement.

This law overrides section CG 4, which usually deals with insurance payments for this kind of situation.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=LMS952306.

Topics:

Money and consumer rights > Taxes

Environment and resources > Farming and fishing

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”

CZ 26: Land and buildings affected by Canterbury earthquakes—sections CB 9 to CB 11 and CB 14 overridden for Crown purchases, or

“Special tax rules for selling earthquake-affected Canterbury property to the government”

Part C Income
Terminating provisions

CZ 25DImprovements to farmland and horticultural plants affected by North Island flooding events and replaced—insurance or compensation

This section applies for a person and an income year (the current year) before the 2028–29 income year when the person,—
in or before the current year, receives an amount of insurance or compensation for improvements to land subject to section DO 4 or DO 5 (which relate to improvements to land) (the affected property) that was damaged or destroyed by a North Island flooding event; and
in the absence of this section, would have, in or before the current year, a total amount of income (the insurance income) under section CG 4 (Receipts for expenditure or loss from insurance, indemnity, or otherwise) from the compensation or insurance for the affected property; and
has claimed deductions for the affected property under 1 or more of section DO 4, DO 5, or DO 11 (which relate to improvements to land); and
plans, in the current year, to acquire property (the replacement property)—
1. replacing the affected property; and
2. meeting the requirements of subsection (4); and
notifies the Commissioner under subsection (7) in relation to the affected property.

The amount of the insurance or compensation is not income unless subsection (3) or (6) applies.
Where the person incurs expenditure (the replacement cost) in the current year to acquire replacement property and the amount of the insurance or compensation exceeds the replacement cost,—
the amount of the insurance or compensation is income in the current year to the extent to which it exceeds the replacement cost; but
the amount of that income is reduced to the extent to which the amount of the insurance or compensation is also greater than the original cost of the affected property.

If the person acquires replacement property, the value attributed to the expenditure to acquire the replacement property for the purposes of section DO 4 or DO 5, as applicable, is,—
if the insurance income is equal to or greater than the replacement cost, zero:
if the insurance income is less than the replacement cost, the extent to which the replacement cost exceeds the insurance income.

For an item of affected property, replacement property must be an improvement to farm land as described in schedule 20, part A (Expenditure on farming, horticultural, aquacultural, and forestry improvements) or a listed horticultural plant—
acquired in or before the person’s 2027–28 income year; and
located in New Zealand.

The person has an amount of income for the affected property in the current year equal to the insurance income when—
the current year ends, if the current year is the 2027–28 income year:
in the current year, the person decides not to replace the affected property:
in the current year, the person goes into liquidation or becomes bankrupt.

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

The Commissioner may allow the person to file the notice under subsection (7) at a later time if the Commissioner considers there are exceptional circumstances.
A notice under subsection (7) must—
describe the affected property; and
give details of replacement property acquired in the current year to replace, in full or in part, the affected property; and
give the cost of the replacement property and the value attributed to that cost under subsection (4) for the purposes of section DO 4 or DO 5, as applicable; and
give the amount, for the affected property, of the income from insurance or compensation remaining suspended under subsection (2) at the end of the current year.

This section overrides section CG 4.

Notes

Section CZ 25D: inserted (with effect on 1 April 2022), on 28 March 2024, by section 29(1) (and see section 29(2) for application) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).