Tax relief for quake testing buildings

8:30 am on 30 November 2016

Owners of earthquake-stricken buildings are likely to get tax relief on some of their costs.

A new proposal from the Inland Revenue Department would allow the tens of thousands of dollars required to get a building tested for earthquake resilience to be tax deductible.

The cordon around quake-damaged buildings on Featherston Street in central Wellington.

A cordon in central Wellington around buildings affected by the 7.8 quake on 14 November. Photo: RNZ / Aaron Smale

Such testing requires engineers to carry out a detailed seismic assessment (DSA) to gauge how much strengthening is needed.

Originally the department did not want to make this cost tax-deductible but has reconsidered.

"The Commissioner considers that, from a practical or business point of view, expenditure on a DSA ... should be treated as revenue in nature and (be made tax) deductible," IRD said in a statement.

"This outcome is consistent with increasing certainty and reducing compliance costs."

Geoff Nightingale of PWC welcomed the change of mind.

He said seismic assessments were not always done to improve the value of a building.

There were "any number of reasons" such as to to reassure staff or help in a decision it was possible to undertake certain functions in the building.

The Property Council also supports the plan, though it says the IRD should go further and give tax relief on the cost of actually doing the strengthening.

The council's Matt Paterson said strengthening work could run into millions of dollars more and was not affordable for most owners.

"There is a huge public benefit in strengthening buildings and making them safe and prepared for earthquakes.

"The government should be helping to contribute to that because of that public benefit."

The IRD has consistently argued that strengthening a building adds to its value and is therefore a capital cost, not a business expense.

Mr Nightingale said that argument could be countered, because earthquake strengthening did not always increase real value for a property owner.

"They still have only got a building that can perform a similar function as what it was doing before the strengthening took place," he said.

"It might survive a large earthquake better so it is more useful in that respect.

"But actually it can still house only the same people and perform the same function as before.

"So there is some thought that that kind of seismic strengthening could be made tax deductible without overturning the normal capital-revenue boundary in New Zealand."