The Property Council, which represents commercial and industrial property owners, has called on the government to allow property owners to claim a tax deduction on losses incurred because of the Canterbury Earthquake.
Property Council chief executive Connal Townsend said many property owners had buildings that were significantly damaged in the earthquakes and many buildings would need to be demolished.
“Current tax law prohibits property owners from claiming this tax deduction. However, we believe there was a precedent set after the Bay of Plenty floods in 2004, when the then Labour government granted a waiver," Townsend said.
“This effectively allowed a tax deduction to be claimed for the difference between the insurance proceeds and the tax book value of the building prior to the adverse event,” he said.
The Property Council said it also endorsed a proposal by KPMG that clarifies that costs incurred in demolishing buildings that are structurally unsafe or uneconomic to repair are deductable for tax purposes.
“New Zealand’s tax system should compensate where New Zealanders suffer real economic losses,” he said.
“It’s important that every step is taken to ensure Canterbury residents and businesses are able to recover from the tragedy that has occurred in recent weeks.”
8 Comments
It's certainly raises an interesting point.
Which is: how many commercial property owners are under insured?
There is no way most of the irreparably damaged buildings have full replacement cover, which leaves me perplexed as to why they are demolishing many buildings with possibly repairable damage.
The likelihood I see is that many owners will opt to take insurance and not rebuild (or not be able to rebuild) because they only have indemnity or depreciated value insurance.
The best solution for these owners who do not have the funds to rebuild is to leave their damaged buildings standing and sell as is - a site without a building will be hard to sell when there is so much construction happening, yet a damaged building may be repairable to the right buyer.
There has been an assumption that everything damaged will be rebuilt but that may not be the case. We will see a lot rebuilding but overall expect a substantial reduction in lettable space in the city for many years to come.
Of course owners could repair their buildings in which case any expense beyond the insurance payout would be deductable. Rewarding building owners for demolishing what are likely to be heritage or character buildings sends the wrong incentives. It also gives incentive to demolish where repair may be the quicker option to get the city up and working again.
Just, in regards rebuilding efforts, I have been surprised at the number of contractors (who I normally deal with) contacting me to see if any work is available (which I haven't at this stage) obviously too early at this stage. Many seem frustrated that there's so much work out there but the work's not available yet.
Chris J
People in the know down there tell me the problem might be far bigger than perhaps is widely perceived. Apparently most valuations done for commercial building replacement insurance purposes factor in only enough allowance to carry out repairs to the mandatory 30% level of the standard earthquake resistance code. Now the council is talking double that % most insurance cover won't be nearly enough. Apparently hundreds of thousands $ difference between the two percentages for a modest commercial building.
John Grant's article in this publication Tuesday 7 September 2010 "Helping the over 10,000 uninsured quake victims will create a moral hazard" covers the insurance angle comprehensively addressing the issues of both uninsurance and underinsurance and the increased costs of changed building codes: see http://www.interest.co.nz/insurance/helping-over-10000-uninsured-quake-victims-will-create-moral-hazard
The Property Council is a "Peak Industry Body" or "Lobby Group" representing commercial and industrial property owners. Their press release appears to suggest those concerns raised in John Grants article are valid and further suggests that commercial and industrial businesses who would be expected to be on top of their game, assessing risk, reviewing contracts of insurance on an annual basis have been lax. And here is their Lobby Group touting for taxpayer funded compensation. If they were fully insured they wouldnt be issuing this press release.
The problems that arise from that are these : Whatever assistance is finally provided should treat all people equally. A commercial business would be able to benefit from a tax deduction (if given) of the uninsured/underinsured component. But what about a homeowner, somone who is on wages, or unemployed, or retired. It would have to be a (cash) rebate and not a deduction.
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