Change to Tax Treatment of Earthquake Strengthening Vital

Press Release – New Zealand First Party

New Zealand First hopes to amend the tax treatment of earthquake strengthening later this year, says Ron Mark, New Zealand First Deputy Leader and Spokesperson on Building and Construction.

Ron Mark
New Zealand First Deputy Leader
Spokesperson on Building
and Construction
31 MARCH 2016

Change to Tax Treatment of Earthquake Strengthening Vital

New Zealand First hopes to amend the tax treatment of earthquake strengthening later this year, says Ron Mark, New Zealand First Deputy Leader and Spokesperson on Building and Construction.

“Our common sense amendment seems now to have broad support from Labour, ACT, the Greens, and potentially the Māori Party.

“Without some sanity on the tax treatment, it makes it far cheaper to abandon buildings in many areas than to upgrade. As it also stands, the government is effectively harmonising the tax treatment of earthquake strengthening and demolition.

“Sadly, yesterday in Parliament our amendment was ruled out of scope for the Building (Earthquake-prone Buildings) Amendment Bill because it amended the Income Tax Act 2007.

“We will not give up on the vital tax treatment of earthquake strengthening and will be looking to reintroduce it as a Supplementary Order Paper on a more suitable piece of legislation.

“Inland Revenue has taken the unusual view that ‘seismic works’ somehow increases the value of a building when the reaction of industry, local government and major accounting firms is, ‘you’ve got to be joking? Sadly, IRD aren’t.

“Everyone knows that a yellow sticker slashes a building’s value so bringing it back up to standard does not add value but it does cost a lot of money. These costs are identical in Waipawa as they are in Wellington.

“National likes to claim it is the party of business, of less red tape and of less compliance but its actions in this Bill are the complete opposite. If we don’t get this across the line you can only fear for architectural gems from Oamaru to Howick.

“Making buildings safer, quicker, is surely the objective and is why we’re hoping for bipartisan support,” Mr Mark said.

NEW ZEALAND FIRST’S ATTEMPTED AMENDMENT TO THE Building (Earthquake-prone Buildings) Amendment Bill

New clause 41C

After clause 41B (page 46, after line 25), insert:

41C Consequential amendment to Income Tax Act 2007

(1) This section amends the Income Tax Act 2007.

(2) In section DA 2(1), after “capital nature”, insert “, unless they are seismic works where an EPB notice has been issued for the building under section 133AK of the Building Act 2004”.

Explanatory note

This Supplementary Order Paper inserts new clause 41C to redress significant tax disadvantages faced by commercial, industrial, retail, and heritage property owners when looking to bring buildings above the earthquake-prone building threshold required by this Bill. Major chartered accountants (like KPMG and others), property owners, and even Local Government New Zealand have been outspoken in their belief that Inland Revenue is inconsistently treating the tax deductibility of business costs by considering seismic works to be a capital expense for tax purposes. As the Property Council of New Zealand noted in its April 2014 submission: “The expenditure required to remedy this will not increase the value of the building, on the basis that earthquake strengthening will not qualitatively change the function of the building (i.e. will generally not result in a higher rental stream)…In short, expenditure on earthquake strengthening is largely made to mitigate a loss in economic value, not enhance to the value of a building”. Without this consequential amendment, many buildings may be demolished without replacement, creating blight in areas of lower capital value.

ENDS

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