Friday, May 24, 2024

Tax rule changes confirmed for cyclone-hit properties

The Government has confirmed details of the tax changes to the bright-line test for cyclone-damaged properties, with the release of the required legislative amendments.

Revenue Minister, Barbara Edmonds today released a Supplementary Order Paper (SOP) to be considered by the Finance and Expenditure Committee in the next Parliament, as it finalises an annual taxation rates bill that is already before the House.

“The Government is committed to making our tax system fairer. Everyone should pay their fair share but hard-working New Zealanders shouldn’t be over-taxed due to situations outside their control,” Minister Edmonds said.

“As previously announced, the law change will ensure that owners of cyclone or flood damaged properties who agree to a voluntary council buy-out will not be caught by the tax rules that apply to profits on some land sales.

“It’s clear to us that it’s not appropriate or fair to apply the bright-line test to main homes that have been hit by severe weather events.

“In addition to addressing issues with voluntary buy-outs, we’re also extending the main home exemption for people who vacate their main home for more than 12 months while it is being repaired.”

She said officials anticipate that only a small number of properties could be affected. These are homes that were purchased on or after 27 March 2021, impacted by the severe weather events, and have been uninhabitable during repair work that takes longer than 12 months to complete.

“Once enacted, the Government intends this measure to apply from 8 January 2023, effectively backdating it to prior to the North Island weather events including Cyclone Hale.”

“Officials will continue to look at other areas of the main home exemption to ensure it is still working as it should and people affected by the weather events aren’t being caught by the test,” Minister Edmonds said.

The Supplementary Order Paper also picks up technical changes required to fix a double-taxation issue that has arisen for shareholders in co-operative companies, such as Fonterra.

“The changes address an issue that would see a majority of pay outs to shareholders lose their deductible status, even when there has been no change in their shareholding.”

“Farmer shareholders such as those who supply to Fonterra could lose out on future payouts. This would be a result of the company’s income being taxed twice, in the hands of the co-operative and farmers.

“A change will be made to maintain the current treatment of deductible distributions until the end of the 2025 income year, providing more time to find a long-term solution. By allowing Fonterra to continue to deduct distributions this way, the Government is forecast to collect $58 million less in tax revenue.

“Inland Revenue have been working alongside Fonterra to find a fix. By extending the tax treatment today, we’re ensuring they can find a sustainable outcome for everyone,” Ms Edmonds said.

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