Will Foley: Quake-hit farmers won't be hit by tax jolt

Will Foley.

When a building or vital piece of machinery is destroyed in a natural disaster, the last thing the property owner needs is to be stung by a tax bill.

So it's good news that, following lobbying by Federated Farmers, the Government has just announced relief on depreciation rollover for those hit by November's massive Kaikoura/Hurunui earthquake.

Good work all round, but I can't help wondering why we don't bed in this policy as standard in such circumstances.

In 2011 the Government amended the Income Tax Act to provide taxpayers with property damaged or destroyed by the Canterbury earthquakes with the ability to defer a depreciation recovery income liability when that property is replaced using insurance settlements.

Federated Farmers asked the minister of revenue in December for another amendment so the same thing can apply to those hit by the Kaikoura jolt.

Where a depreciated insured asset is destroyed there is often depreciation recovered, especially where the asset is insured for replacement cost.

This depreciation recovered, which is taxable, is a reversal of depreciation previously claimed.

Federated Farmers president William Rolleston said for quake-affected taxpayers this could have resulted in a big tax liability, which is not something hard-pressed farmers and other business owners need in the middle of often stressful and expensive recovery work.

Depreciation rollover relief rules allow taxpayers to elect to defer depreciation recovery income where the insurance proceeds are used to acquire a replacement asset (thereby at least deferring the payment of taxation that could otherwise have arisen).

In such cases, the depreciation recovery income is effectively deducted from the tax value of the replacement asset so that the income will not arise until that replacement asset is sold.

Depreciation rollover relief is quite technical and complicated, but for anyone affected or interested, there are further details - and a practical example of how it works - on the Federated Farmers website at www.fedfarm.org.nz.

What's needed now is cross-party support as this change to the Income Tax Act progresses through Parliament.

It's a good example of the work Federated Farmers does, often behind the scenes. As a respected and united voice for farmers around the nation, it's our work that helps get ministers of the Crown and officers and councillors of local councils to listen.

- Will Foley is Federated Farmers Hawke's Bay President.