After an emergency event you may need to consider destroyed or damaged assets, insurance payouts and clean-up costs.
The following matters are complex, and we suggest you talk to a tax agent if you can.
Destroyed assets
An asset, other than a building, that is destroyed or damaged beyond repair, is treated as a disposal or sale of the asset and triggers a tax gain or loss. If the sale or insurance receipts you receive are less than your remaining book value for the asset, you can claim the net amount as a deduction. See this page including our Depreciation (IR260) guide for more information.
This rule does not apply to farming, horticultural and forestry improvements such as tracks, yards, bores or wells. These improvements are amortisable under section DO 4 and Schedule 20 of the Income Tax Act 2007, and you can't claim the remaining unamortised portion.
Insurance payouts
If the payout is for lost trading stock (for example, livestock or sales goods) or consumables (for example, hay or raw materials) it is taxable income.
If the payout is for depreciable capital assets (for example, barns, sheds or manufacturing plant), you must include it when you calculate the amount of depreciation recovered income for past depreciation claims.
If you received an insurance payout for property that is pooled for depreciation, decrease the book value of the pool by the amount of the insurance payout.
Usually, the insurance payout is income in the year the insured event takes place, if you can work out the extent of the damage at that time. For some events, you may be able to elect to rollover the payout into a later year. You will need to check the specific event.
Help for specific adverse or emergency events
Building demolition costs
You cannot deduct building demolition costs, except for temporary buildings.
A temporary building has a finite life and will be demolished or removed:
- when, or before construction has finished on the site where the temporary building was put up
- when the plant or machinery, that the temporary building was put up to house, is removed or replaced.
Clean-up costs
It may be difficult to work out if clean-up costs are capital or revenue. We recommend you discuss this with a tax advisor.