EZ 23BEProperty acquired after depreciable property affected by North Island flooding events

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, receives insurance or compensation (the flood compensation) for items of depreciable property (the affected property), each of which is—
   1. not depreciable intangible property; and
   2. included in one of the categories (an affected class) of the person’s depreciable property referred to in subsection (12)(b); and
3. is entitled to the flood compensation because each item of the affected property, as a result of a North Island flooding event, 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 83; and
4. would have, in the absence of this section, from the flood compensation for the affected property in 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 property in 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. plans in the current year to acquire depreciable property (the replacement property) meeting the requirements of subsection (8); and
7. notifies the Commissioner under subsection (10)—
   1. specifying the affected property and affected class; and
   2. linking, for the purposes of this section, each item of acquired replacement property with an affected class.

8. For an affected class, 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 that remains at the beginning of the current year after—

9. adjustment under subsections (4) and (7) for an earlier income year; and
10. attribution to an earlier income year by subsection (9).

11. The person has an amount of depreciation recovery income for the current year equal to the amount of suspended recovery income that is attributed to the current year by subsection (9).

12. If the person acquires an item of replacement property (the replacement item) and links the replacement item with an affected class of affected property for which the person does not use the pool method, the amount given by subsection (5)—

13. is treated as not being included in the amount of the person’s expenditure on the replacement item for the purposes of determining,—
    1. under section EE 16(4) (Amount resulting from standard calculation), the item value or cost for the replacement item, if the person uses the diminishing value method or straight-line method for the replacement item; or
    2. under section EE 22 (Cases affecting pool), the cost of the replacement item, if the person uses the pool method for the replacement item; and
14. is a reduction in the amount of the suspended recovery income for the affected class.

15. The amount of the reduction under subsection (4)(a) or (b) for a replacement item and an affected class of affected property for which the person does not use the pool method is—

16. zero, if the cost of the affected class equals or is less than the person’s total expenditure in acquiring, before the replacement item, other replacement property linked with the affected class; or
17. the amount calculated using the formula—

18. In the formula,—

19. limited replacement cost is the lesser of—
    1. the amount by which the cost of the affected class exceeds the total expenditure in acquiring, before the replacement item, other replacement property linked with the affected class:
    2. the amount of the expenditure on the replacement item:
20. excess is the excess recovery for the affected class:
21. affected cost is the total cost for the person of the affected class.

22. If the person acquires a replacement item and links the replacement item with an affected class of affected property for which the person uses the pool method,—

23. the amount of the person’s expenditure on the replacement item is treated as being reduced by the amount equal to the lesser of the amount of expenditure on the replacement item and the amount of suspended recovery income for the affected property after the acquisition of other replacement property before the replacement item for the purposes of determining—
    1. the adjusted tax value of the replacement item, if subparagraph (ii) or (iii) does not apply; or
    2. the cost of the replacement item for the straight-line method, if that method is used to determine depreciation loss for the replacement item; or
    3. the adjusted tax value of the pool of the replacement item, if the person uses the pool method for the replacement item; and
24. the amount of the suspended recovery income for the affected class is reduced by the amount of the treated reduction under paragraph (a).

25. An item of replacement property for a person must—

26. be included in the same category under subsection (12)(b) as the affected class with which the person links the item if the affected class is described in subsection (12)(b)(i), (ii), (v), or (vi); and
27. be located in New Zealand, if the item is a building or commercial fit-out.

28. The person has, in the current year, an amount of depreciation recovery income for an affected class equal to the amount of suspended recovery income for the affected class—

29. at the end of the current year, if that year is the 2027–28 income year and neither of paragraphs (b) and (c) apply earlier; or
30. when in the current year the person decides not to acquire more replacement property, if neither of paragraphs (a) and (c) apply earlier; or
31. when in the current year the person goes into liquidation or becomes bankrupt, if neither of paragraphs (a) and (b) apply earlier.

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

33. for the earliest income year (the estimate year) in which the amount of the insurance or compensation for the affected property can be reasonably estimated, by the later of 30 April 2024 and the date on which the return of income is filed for the estimate year; and
34. 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.

35. The Commissioner may allow the person to file the notice under subsection (10) at a later time if the Commissioner considers there are exceptional circumstances.

36. A notice under subsection (10) must—

37. describe the items of affected property; and
38. indicate in which of the following categories each item of affected property is included:
    1. a building not referred to in subparagraph (iii):
    2. commercial fit-out not referred to in subparagraph (iv):
    3. buildings for which the person uses the pool method:
    4. commercial fit-out for which the person uses the pool method:
    5. depreciable property for which the person uses the pool method, other than a building or commercial fit-out:
    6. depreciable property not referred to in subparagraphs (i) to (v); and
39. give details of each item of replacement property acquired in the current year and the affected class to which the person is linking the item; and
40. give the amount of the expenditure on the replacement item and the reduction under subsection (4) or (7) of that expenditure for the purposes of determining adjusted tax value or depreciation loss; and
41. give the amount, for each affected class, of the suspended recovery income at the end of the current year.

42. For the purposes of section EE 48, the amount by which a person’s expenditure on a replacement item is treated as being reduced under subsection (4) or (7) is an amount of depreciation loss for the item for which the person has been allowed a deduction.

43. 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.

44. This section overrides subpart EE (Depreciation).

Notes

• Section EZ 23BE: inserted (with effect on 1 April 2022), on 28 March 2024, by section 72(1) (and see section 72(2) for application) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).