Saturday, June 15, 2024

Government to axe tax test for cyclone buy-out properties

Revenue Minister, Barbara Edmonds, has today confirmed that the ‘bright-line’ tax test will not be triggered when local authorities buy-out weather-damaged properties in Auckland, Hawke’s Bay, Tairawhiti, and other affected regions.

The Minister said the Government was committed to supporting those affected by the severe weather events.

“It has been a trying time for many residents and I am conscious that people want certainty,” Ms Edmonds said.

“In some cases, a voluntary buy-out may trigger the bright-line test or one of the other tests for land sales. This could be seen in the example of a property owner who has a rental home they have owned for less than 10 years.

“The Government is clear that it isn’t appropriate to apply the bright-line test to these property sales because the impact of weather events gave the property owner little option other than to sell to the local authority.

“We have a precedent for these changes. Amendments have been largely modelled on homes that were similarly damaged by the Canterbury earthquakes.”

Minister Edmonds said officials from Inland Revenue and the Cyclone Recovery Unit have been working on a fix since the Government and local authorities announced they would jointly fund the voluntary buyouts.

Changes will be made through a Supplementary Order Paper to change a piece of omnibus tax legislation currently before Parliament through the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Bill.

“The amendment will ensure the bright-line and other time related tests do not apply following a Government or local authority buy-out of a North Island flood or cyclone-affected property. It would be unfair for property owners to be taxed under these tests on compensation payments,” Ms Edmonds said.

Officials have advised it is difficult to assess the number of property owners potentially affected by the bright-line test in this way, but estimate it could be a few dozen cases, she said.

These changes build on earlier measures to ensure flood-hit North Island businesses are not overtaxed. This includes rollover relief that means insured businesses can use their pay-outs to replace assets, rather than have it reduced by an unexpected tax bill.

Other measures allowed Inland Revenue to remit interest due on late tax payments for those unable to pay their tax on time, or accurately forecast their provisional tax because the business has suffered significant adverse effects from the weather events. 

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