Many building owners in Canterbury may have taken the opportunity to defer tax adjustments that result from earthquake tax concessions. This would have occurred when earthquake insurance proceeds were paid for the full value of a building, as the receipt of insurance proceeds would have been deemed to have been an asset sale.
After an asset sale occurs a tax adjustment called “depreciation recovered” is often made, which increases income in the year of sale.
Shortly after the Canterbury Earthquakes the Government offered a tax concession which allowed some building owners to defer the adjustment if a replacement building was to be acquired in the future. Time has been allowed until 31 March 2019 to enable businesses to replace affected assets.
If a business has taken the initial tax deferral subject to an asset replacement, then the replacement should occur before 31 March 2019. If this asset replacement does not occur within the time frame, then the tax adjustment will be assessed in the 2019 tax year. Clients concerned about the timing of this adjustment should contact Nexia staff for assistance. This issue can also apply to replacement equipment, but this issue is less common.
For more information please contact:
Nexia New Zealand
P: 03 379 0829