Supplementary Order Paper No 257

New clauses 52B, 52C, and 52D

After clause 52 (page 47, after line 26), insert:

52B Section EZ 23B amended (Property acquired after depreciable property affected by Canterbury earthquakes)
  • (1) Replace section EZ 23B(1) and (2) with:

    When this section applies
    • (1) This section applies for a person and an income year (the current year) before the 2019–20 income year when the person,—

      • (a) in or before the current year, receives insurance or compensation (the earthquake compensation) for items of depreciable property (the affected property), each of which is—

        • (i) not depreciable intangible property; and

        • (ii) included in 1 of the categories (an affected class) of the person's depreciable property referred to in subsection (10)(b); and

        • (iii) included in an affected class that is not linked with a replacement interest under section EZ 23BB; and

      • (b) is entitled to the earthquake compensation because each item of the affected property, 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 or EZ 65; and

      • (c) would have, in the absence of this section, from the earthquake compensation for the affected property in the affected class, depreciation recovery income under section EE 48 (Effect of disposal or event) in or before the current year; and

      • (d) has a total amount of depreciation loss under section EE 48 for the affected property in the affected class that, treated as a positive amount, is less than the total amount of depreciation recovery income referred to in paragraph (c) by an amount (the excess recovery); and

      • (e) plans in the current year to acquire depreciable property (the replacement property) meeting the requirements of subsection (7); and

      • (f) gives written notice to the Commissioner under subsection (9)—

        • (i) specifying the affected property and affected class; and

        • (ii) linking, for the purposes of this section, each item of acquired replacement property with an affected class.

    Suspended recovery income
    • (2) For an affected class, the amount that may be depreciation recovery income of the person in or after the current year (the suspended recovery income) is the excess recovery that remains at the beginning of the current year after—

      • (a) adjustment under subsections (3) and (6) for an earlier income year; and

      • (b) attribution to an earlier income year by subsections (7B) and (8).

    Depreciation recovery income
    • (2B) The person has an amount of depreciation recovery income for the current year equal to the amount of suspended recovery income that is attributed to the current year by subsections (7B) and (8).

    (2) In section EZ 23B(3),—

    • (a) in the words before paragraph (a), insert an affected class of before affected property:

    • (b) in paragraph (b), replace property with class.

    (3) In section EZ 23B(4),—

    • (a) in the words before paragraph (a), insert an affected class of before affected property:

    • (b) in paragraph (a), replace property; with class;.

    (4) In section EZ 23B(5)(a)(i),—

    • (a) replace cost of the affected property: with cost of the affected class::

    • (b) replace linked with the affected property with linked with the affected class.

    (5) In section EZ 23B(6)—

    • (a) in the words before paragraph (a), insert an affected class of before affected property:

    • (b) in paragraph (a)(ii), replace ; and with ; or.

    • (c) in paragraph (b), replace property with class.

    (6) Repeal section EZ 23B(7)(a) and (b).

    (7) After section EZ 23B(7), insert:

    Depreciation recovery income: no acquisition, consent application, for building before end 2015–16 income year
    • (7B) If a person has an amount of suspended recovery income for an affected class of buildings or grandparented structures and, by the end of the 2015–16 income year, there is replacement property (the unconfirmed property) that is linked to the affected class and has not been acquired and has not been the subject of an application to the appropriate authority for consent to construction,—

      • (a) the person has, in the 2015–16 income year, an amount of depreciation recovery income for the affected class equal to the suspended recovery income corresponding to the unconfirmed property; and

      • (b) the suspended recovery income for the affected class is reduced by the amount referred to in paragraph (a).

    (8) Replace section EZ 23B(8) with:

    Attribution of suspended recovery income to income year: other events
    • (8) The person has, in the current year, an amount of depreciation recovery income for an affected class equal to the amount of suspended recovery income for the affected class—

      • (a) at the end of the current year, if that year is the 2018–19 income year and neither of paragraphs (b) and (c) apply earlier; or

      • (b) when in the current year the person decides not to acquire more replacement property, if neither of paragraphs (a) and (c) apply earlier; or

      • (c) when in the current year the person goes into liquidation or becomes bankrupt, if neither of paragraphs (a) and (b) apply earlier.

52C New section EZ 23BB inserted (Interest in property acquired after depreciable property affected by Canterbury earthquakes)
  • After section EZ 23B, insert:

    EZ 23BB Interest in 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 2019–20 income year when the person,—

      • (a) in or before the current year, receives insurance or compensation (the earthquake compensation) for items of depreciable property (the affected property), each of which is—

        • (i) not depreciable intangible property; and

        • (ii) not property for which the person uses the pool method; and

        • (iii) included in 1 of the categories (an affected class) of the person's depreciable property referred to in subsection (12)(b); and

        • (iv) not linked with replacement property under section EZ 23B; and

      • (b) is entitled to the earthquake compensation because each item of the affected property, 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; and

      • (c) would have, in the absence of this section, from the earthquake compensation for the affected class, depreciation recovery income under section EE 48 (Effect of disposal or event) in or before the current year; and

      • (d) has a total amount of depreciation loss under section EE 48 for the affected class that, treated as a positive amount, is less than the total amount of depreciation recovery income referred to in paragraph (c) by an amount (the excess recovery); and

      • (e) has in the current year an interest (a replacement interest) in a voting interest in a company (the owning company) having the purpose of acquiring depreciable property (the replacement property) meeting the requirements of subsection (6); and

      • (f) holds the voting interest in the owning company or is the settlor of a trust of which the trustee holds the voting interest; and

      • (g) gives written notice to the Commissioner under subsection (11).

      Suspended recovery income

      (2) For a replacement interest, the amount that may be depreciation recovery income of the person in or after the current year (the suspended recovery income) is the excess recovery, for the affected property with which the replacement interest is linked under subsections (11) and (12), that remains at the beginning of the current year after—

      • (a) adjustment under subsections (3), (8), and (9) for an earlier income year; and

      • (b) attribution to an earlier income year by subsections (8) to (10).

      Effect of acquiring interest in replacement property if suspended recovery income from affected class

      (3) If the person acquires a replacement interest and links the replacement interest with an affected class, the amount given by subsection (4)

      • (a) is an amount of suspended recovery income for the replacement interest; and

      • (b) is a reduction in the amount of the depreciation recovery income for the affected class.

      Suspended recovery income for replacement interest and reduction of suspended recovery income for affected class

      (4) The amount under subsection (3)(a) and (b) for a replacement interest and affected class is—

      • (a) zero, if the cost of the affected property in the affected class equals or is less than the total of the fractional interest values for other replacement interests acquired by the person with or before the replacement interest; 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—

        • (i) the fractional interest value of the replacement interest:

        • (ii) the amount by which the total cost for the person of the affected property in the affected class exceeds the total amount of the fractional interest values of other replacement interests acquired by the person with or before the replacement interest:

      • (b) excess is the excess recovery for the affected class:

      • (c) affected cost is the total cost for the person of the affected property in the affected class.

      Requirements for replacement property

      (6) An item of replacement property for a person or owning company must—

      • (a) be included in the same category under subsection (12)(b) as the affected class with which the person links the item, if the affected class is described in subsection (12)(b)(i) or (ii); and

      • (b) 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 or commercial fit-out.

      Depreciation recovery income and suspended recovery income

      (7) The amount of suspended recovery income for a person's replacement interest is not depreciation recovery income for the person arising from the replacement interest unless it is attributed to an income year by subsections (8) and (9).

      Depreciation recovery income: disposal of replacement property by owning company

      (8) If the owning company in which a person has a replacement interest disposes of the replacement property in an income year, and subsection (10) does not apply earlier,—

      • (a) the person has, in the income year for the replacement interest, an amount of depreciation recovery income equal to the fractional interest value of the replacement interest calculated under subsection (13); and

      • (b) the suspended recovery income for the replacement interest is reduced by the amount referred to in paragraph (a).

      Depreciation recovery income: no acquisition, consent application, for building before end 2015–16 income year

      (9) If a person has an amount of suspended recovery income for a replacement interest arising from replacement property that is a building and, by the end of the 2015–16 income year, replacement property (the unconfirmed property) for the replacement interest has not been acquired by the owning company and is not the subject of an application by the owning company to the appropriate authority for consent to construction,—

      • (a) the person has, in the 2015–16 income year, an amount of depreciation recovery income for the replacement interest equal to the suspended recovery income corresponding to the unconfirmed property; and

      • (b) the suspended recovery income for the replacement interest is reduced by the amount referred to in paragraph (a).

      Depreciation recovery income: other events

      (10) The person has, in an income year, an amount of depreciation recovery income equal to the suspended recovery income for a replacement interest and affected property, and the suspended recovery income for the replacement interest and affected property is reduced to zero,—

      • (a) at the end of the income year, if—

        • (i) the income year is the 2018–19 income year; and

        • (ii) the owning company does not acquire the replacement property relating to the replacement interest and the affected property before the end of the income year; and

        • (iii) neither of paragraphs (b) and (c) apply earlier; or

      • (b) when in the income year the person disposes of the replacement interest, 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

      (11) A person choosing to rely on this section to suspend in a current year the recognition of suspended recovery income from earthquake compensation must give written notice to the Commissioner—

      • (a) for the earliest income year (the estimate year) in which the amount of the earthquake 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

      (12) A notice under subsection (11) must—

      • (a) describe the affected property; and

      • (b) indicate in which of the following categories each item of affected property is included:

        • (i) a building or grandparented structure:

        • (ii) commercial fit-out:

        • (iii) depreciable property not referred to in subparagraphs (i) and (ii); and

      • (c) give details of each item of replacement property in which a replacement interest is held in the current year, and the affected class to which the person is linking the replacement interest; and

      • (d) for each replacement interest held in the current year, give the amount of the expenditure by the owning company on the replacement property, the shareholding of the person's holding entity in the owning company, and the shareholding of the person in, or the fraction of the trust corpus that has been settled by the person on, the person's holding entity; and

      • (e) for each category of replacement property, give the amount of the suspended recovery income at the end of the current year; and

      • (f) for each category of replacement property, give the amount of depreciation recovery income for the current year.

      Formula for calculating fractional interest value

      (13) For a person with a replacement interest in replacement property, the fractional interest value of the replacement interest for the purposes of this section is the value calculated using the formula—

      person's fractional interest × replacement expenditure.
      Definition of items in formula

      (14) In the formula,—

      • (a) person's fractional interest is—

        • (i)  the voting interest of the person in the owning company; or

        • (ii) the fraction calculated by multiplying the voting interest in the owning company held by the trustee of a trust of which the person is a settlor by the fraction of the trust corpus that has been settled by the person:

      • (b) replacement expenditure is the amount of the expenditure by the owning company on the replacement property.

      Relationship to subpart EE

      (15) This section overrides subpart EE (Depreciation).

      Defined in this Act: adjusted tax value, amount, assessable income, building, commercial building, commercial fit-out, depreciable property, depreciation loss, depreciation recovery income, grandparented structure, income year, liquidation, notice, return of income.

52D Sections EZ 23C to EZ 23G repealed
  • (1) Repeal sections EZ 23C to EZ 23G.

    (2) Subsection (1) applies for the 2016–17 and later income years.