Earthquake tax package could use some tweaking to help businesses back to their feet: KPMG

Earthquake tax package could use some tweaking to help businesses back to their feet: KPMG

By Amanda Morrall

Christchurch businesses crippled by the country's worst natural disaster in a century are seeking far reaching tax relief to offset losses and help get them back on their feet.

In addition to measures announced earlier this week (see this article by Alex Tarrant) by Finance Minister Bill English, businesses and their accountants are lobbying for tax breaks on earthquake strengthening expenditures, the alignment of tax on insurance proceeds with actual pay-out deliveries, and the suspension of depreciation recovery income.

KPMG's tax team director in Christchurch, Mark Lodder, said the combined effect of the above 'big ticket' tax items would considerably ease the financial pressure for scores of businesses facing huge uncertainty about their long-term survival prospect.

"These are the issues that people in Christchurch would like to see addressed,'' said Mark Lodder.

The exact number of businesses affected by the Sept.4 and Feb.22 is unknown however at least 6,000 businesses (collectively employing over 50,000 people) operating in the CBD are believed to have suffered losses of varying degrees.

Small to medium size businesses in Christchurch make up 13% of the national pool.

Government, on Monday,  announced several tax measures aimed at helping businesses including tax-free welfare contributions  for employers,  allowances for late tax filings   and tax deductions for trading stock donated.

While those measures were favourably received, business community advocates said tax relief in itself did not go far enough.

"It's a very important element but it is just one part of a wider package that is needed to help businesses get through,'' said Renee Walker,  a spokesperson for Recover Canterbury, a business outreach programme established following the two earthquakes.

On Thursday, business leaders in Canterbury, including  Solid Energy chief executive Don Elder, met with Finance Minister Bill English to map out a strategy for recovery.

Walker said effective and prompt support would required a coordinated approach between Government and businesses on the ground in Christchurch.

"Obviously we want businesses to survive and thrive in Christchurch, so we're trying to get together a whole package of things to help them do that.''

On the tax side, Lodder said Government officials were already considering supplementary tax measures to ease the suffering.

While a number of tax strategies that been identified, Lodder said three most apparent ones related to business interruption insurance, depreciation recovery income and earthquake strengthening expenditures.

Insurance claims cash to be taxed

As it stands, businesses due to receive compensation from claims on business interruption would be taxed on the proceeds before they even received them.

Lodder said the mismatch was something that needed to be addressed to avoid placing further financial strain on already overwhelmed businesses and similarly depreciation recovery income.

"One of the issues with depreciation recovery income is if we don't suspend it, there is less to reinvest.''

Earthquake strengthening expenditures was another obvious target for tax relief, said Lodder.

"There should be a deduction available for earthquake strengthening expenditures. At the moment, the rule is that it would be treated as a capital expenditure with no deduction.''

Lodder said he was hopeful these areas would be added to Government's earthquake tax relief measure but said they also warranted consideration in a broader context.

Residents loyalty to the earthquake ravaged city will, to a large degree, depend on jobs making businesses recovery efforts (taxes and otherwise) all the more urgent.

According to a Horizon poll earlier this month, 53% of respondents say work prospects would dictate their decision to remain in the city. That weighting just narrowing edged out the more emotional factor of how a family felt about staying in Christchurch. 

In the weeks following the Feb.22 earthquake at least 50,000 residents had fled the city. It's not clear how many have returned or their intentions to stay.

Earthquake tax measures announced 

The Government yesterday announced a range of tax measures to help 

Christchurch residents and businesses affected by last month’s earthquake. The 

measures, which the Government expects to enact in May, include: 

 Providing an exemption so businesses do not have to pay tax or gift duty on 

trading stock they have donated within four months of either the September 4 

or February 22 earthquakes.  

 Making certain welfare contributions provided by employers tax-free, within 

eight weeks of either earthquake.  

 Extending the redundancy tax credit, which had been due to end on 31 March, 

to 30 September this year.  

 Granting Inland Revenue the discretion to extend statutory tax dates on a case 

or class-of-cases basis.  

 Exempting certain payments made to families who receive Working for Families 

tax credits as a result of the earthquake from counting as income.  

Further information (available at www.taxpolicy.ird.govt.nz) has been provided in 

relation to:  

 

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I agree, the initial measure simply do not tackle the key issues, hope we are not looking at a pull back from the Govt.