Fairness in Taxation: Protecting Cyclone-Damaged Properties
The New Zealand government has unveiled crucial tax changes aimed at addressing the impact of severe weather events on property owners. Revenue Minister Barbara Edmonds has released a Supplementary Order Paper (SOP) outlining these changes, which will be considered by the Finance and Expenditure Committee in the upcoming parliamentary session.
These amendments aim to make the tax system more equitable, particularly for those facing property damage due to cyclones and floods.
A Fair Tax System: Protecting New Zealanders
Barbara Edmonds emphasized the government’s commitment to ensuring a fair tax system.
“Everyone should pay their fair share, but hard-working New Zealanders shouldn’t be over-taxed due to situations outside their control,” she stated.
The new law change will ensure that property owners who agree to a voluntary council buy-out for cyclone or flood-damaged properties will not be subject to the tax rules that typically apply to profits from land sales.
Protection for Main Homes: A Necessary Exemption
The government recognizes that it is neither appropriate nor fair to apply the bright-line test to main homes affected by severe weather events. Additionally, besides addressing issues related to voluntary buy-outs, we will extend the main home exemption for individuals who leave their primary residence for more than 12 months while it undergoes repair work.
Limited Impact: Targeted Relief
Officials anticipate that these changes will affect only a small number of properties—specifically, homes that individuals purchased on or after March 27, 2021 and that severe weather events have impacted, rendering them uninhabitable during repairs lasting longer than 12 months.
The government intends for this measure to apply from January 8, 2023, effectively backdating it to cover previous severe weather events, including Cyclone Hale.
Addressing Double Taxation: Protecting Co-operative Shareholders
The Supplementary Order Paper also addresses a critical double-taxation issue affecting shareholders in co-operative companies, such as Fonterra. The proposed changes aim to rectify a situation where a majority of payouts to shareholders could lose their deductible status, even with no change in their shareholding.
Supporting Farmers: Ensuring Deductible Distributions
Farmer shareholders, particularly those supplying to Fonterra, faced the risk of losing out on future payouts due to double taxation. To safeguard their interests, we will implement a change to maintain the current treatment of deductible distributions until the end of the 2025 income year.
This extension of the tax treatment is expected to result in a $58 million reduction in government tax revenue. Inland Revenue has been working closely with Fonterra to find a long-term solution, ensuring sustainability for all parties involved.
Barbara Edmonds noted,
“By extending the tax treatment today, we’re ensuring they can find a sustainable outcome for everyone.”
These changes reflect the government’s commitment to addressing critical tax issues while supporting those affected by severe weather events and ensuring a fair tax system for all New Zealanders.
Sources: THX News & New Zealand Government.