Section EZ 23B — Income Tax Act 2007: Property acquired after depreciable property affected by Canterbury earthquakes

EZ 23B Property acquired after depreciable property affected by Canterbury earthquakes When this section applies (1) This section applies for a person and an income year (the current year ) before the 2016–17 income year when the person,— (a) in or before the current year, receives insurance or compensation for items of depreciable property (the affected property ) each of which, as a result of a Canterbury earthquake as that term is defined in section 4 of the Canterbury Earthquake Recovery Act 2011, is affected by— (i) damage meeting the requirements of section EE 47(4) (Events for purposes of section EE 44 ); or (ii) a disposal and reacquisition under section EZ 23C . (b) in the absence of this section, would have in or before the current year, from insurance or compensation for the items of affected property (the affected class ) in 1 of the categories referred to in subsection (10)(b), total depreciation recovery income under section EE 48 (Effect of disposal or event) exceeding the total amount for the affected class of depreciation loss, treated as a positive amount, under section EE 48; and (c) plans in the current year to acquire depreciable property (the replacement property ) meeting the requirements of subsection (7); and (d) gives written notice to the Commissioner under subsection (9)— (i) specifying the affected property: (ii) linking, for the purposes of this section, each item of acquired replacement property with an affected class. Depreciation recovery income and suspended recovery income (2) The amount for the affected class of the excess referred to in subsection (1)(b) (the excess recovery ) is not depreciation recovery income except to the extent of the amount that— (a) remains after adjustment under subsection (3) or (6) (the suspended recovery income ); and (b) is attributed to an income year by subsection (8). Effect of acquiring item of replacement property if suspended recovery income from affected property not in pool (3) If the person acquires an item of replacement property (the replacement item ) and links the replacement item with affected property for which the person does not use the pool method, the amount given by subsection (4)— (a) is treated as not being included in the amount of the person's expenditure on the replacement item, for the purposes of determining— (i) under section EE 16(4) (Amount resulting from standard calculation) the item value or cost for the replacement item, if the person uses the diminishing value method or straight-line method for the replacement item; or (ii) under section EE 22 (Cases affecting pool) the cost of the replacement item, if the person uses the pool method for the replacement item; and (b) is a reduction in the amount of the suspended recovery income for the affected property. Amount of reduction: expenditure on replacement item and suspended recovery income (4) The amount of the reduction under subsection (3)(a) or (b) for a replacement item and affected property for which the person does not use the pool method is— (a) zero, if the cost of the affected property equals or is less than the person's total expenditure in acquiring, with or before the replacement item, other replacement property linked with the affected property; or (b) the amount calculated using the formula— limited replacement cost × excess affected cost. Definition of items in formula (5) In the formula,— (a) limited replacement cost is the lesser of the following: (i) the amount by which the cost of the affected property exceeds the total expenditure in acquiring, with or before the replacement item, other replacement property linked with the affected property: (ii) the amount of the expenditure on the replacement item: (b) excess is the excess recovery for the affected property: (c) affected cost is the total cost for the person of the affected property. Effect of acquiring item of replacement property if suspended recovery income from affected property in pool (6) If the person acquires an item of replacement property (the replacement item ) and links the replacement item with affected property for which the person uses the pool method,— (a) the amount of the person's expenditure on the replacement item is treated as being reduced, by the amount equal to the lesser of the amount of expenditure on the replacement item and the amount of suspended recovery income for the affected property after the acquisition of other replacement property with or before the replacement item, for the purposes of determining— (i) the adjusted tax value of the replacement item, if subparagraphs (ii) or (iii) do not apply; or (ii) the cost of the replacement item for the straight-line method, if that method is used to determine depreciation loss for the replacement item; and (iii) the adjusted tax value of the pool of the replacement item, if the person uses the pool method for the replacement item; and (b) the amount of the suspended recovery income for the affected property is reduced by the amount of the treated reduction under paragraph (a). Requirements for replacement property (7) An item of replacement property for a person must— (a) be depreciable property that is not depreciable intangible property; and (b) be acquired in or before the person's 2015–16 income year; and (c) be included in the same category under subsection (10)(b) as the affected class with which the person links the item, if the affected class is described in subsection (10)(b)(i) or (ii); and (d) be located in greater Christchurch as that term is defined in section 4 of the Canterbury Earthquake Recovery Act 2011, if the item is a building, grandparented structure, or commercial fit-out. Amount of depreciation recovery income (8) The person has, in an income year for affected property, an amount of depreciation recovery income equal to the amount of suspended recovery income for the affected property— (a) at the end of the income year, if that year is the 2015–16 income year and neither of paragraphs (b) and (c) apply earlier; or (b) when in the income year the person decides not to acquire more replacement property, if neither of paragraphs (a) and (c) apply earlier; or (c) when in the income year the person goes into liquidation or becomes bankrupt, if neither of paragraphs (a) and (b) apply earlier. Notice of election for affected property (9) A person choosing to rely on this section to suspend in a current year the recognition of suspended recovery income from the insurance or compensation for affected property must give written notice to the Commissioner— (a) for the earliest income year (the estimate year ) in which the amount of the insurance or compensation for the affected property can be reasonably estimated, by the later of 31 January 2012 and the date on which the return of income is filed for the estimate year; and (b) if the current year is after the estimate year,— (i) for each income year between the estimate year and the current year, by the date on which the return of income is filed for that income year; and (ii) for the current year, by the date on which the return of income is filed for the current year. Contents of notice of election (10) A notice under subsection (9) must— (a) describe the items of affected property; and (b) indicate in which of the following categories each item of affected property is included: (i) a building or grandparented structure not referred to in subparagraph (iii): (ii) commercial fit-out not referred to in subparagraph (iii): (iii) depreciable property for which the person uses the pool method: (iv) depreciable property not referred to in subparagraphs (i) to (iii); and (c) give details of each item of replacement property acquired in the current year and the affected class to which the person is linking the item; and (d) give the amount of the expenditure on the replacement item and the reduction under subsection (3) or (6) of that expenditure for the purposes of determining adjusted tax value or depreciation loss; and (e) give the amount, for the affected class, of the suspended recovery income at the end of the current year. Disposal of replacement property: reduction in cost treated as depreciation loss (11) For the purposes of section EE 48 , the amount by which a person's expenditure on a replacement item is treated as being reduced under subsection (3) or (6) is an amount of depreciation loss for the item for which the person has been allowed a deduction. Relationship to subpart EE (12) This section overrides subpart EE (Depreciation). Defined in this Act: adjusted tax value , amount , assessable income , building , commercial building , commercial fit-out , depreciable intangible property , depreciable property , depreciation loss , depreciation recovery income , grandparented structure , income year , liquidation , notice , pool , pool method , return of income , straight-line method Section EZ 23B: inserted (with effect on 4 September 2010), on 29 August 2011, by section 43 of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63). Section EZ 23B(1)(a): replaced (with effect on 4 September 2010), on 2 November 2012 (applying for the 2010–11 to the 2015–16 income years), by section 56(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88). Section EZ 23B(2)(b): amended (with effect on 4 September 2010), on 2 November 2012, by section 56(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).