Call to tackle tax rules on seismic work

Chris Gudgeon.

Building strengthening law due to be passed soon will penalise owners, says landlord.

The head of a listed landlord with $2.2 billion of property investments has called for tax issues on seismic building strengthening to be addressed.

Chris Gudgeon, Kiwi Property chief executive, said owners would be penalised by a building strengthening law due to be passed soon.

Tax deductibility could be claimed if buildings fell down but no recompense could be claimed if the owners strengthened their buildings, Gudgeon said.

"Put simply - do nothing, earthquake strikes, tax deductibility on losses [or] do something, strengthen building, no deductibility," he said.

"Or put another way - kill people, claim losses [or] save lives, no deductibility claim. The status quo is untenable. In tax policy terms, the underlying rationale is that the loss in value of a building as a result of reassessment of seismic risk is an economic loss to the owners.

"This loss is a reduction in income and, under any income tax, should in principle be recognised for tax purposes. Seismic strengthening work is the mechanism by which building owners restore value.

"It is an objective proxy for the underlying and prior economic loss faced by building owners. On that basis, in principle, seismic strengthening costs should be deductible expenditure for tax purposes."

Building and Housing Minister Nick Smith announced big changes to the new law in May, relaxing assessment and strengthening timeframes and splitting the country into zones according to earthquake risk.

Affected buildings in low-risk areas such as Auckland, Northland and Dunedin will now need to be identified and assessed within 15 years and strengthened within 35 years.

The timeframe will be 10 years for assessment and 25 years for strengthening in medium-risk areas including Hamilton, Tauranga, New Plymouth, Rotorua and Wanganui.

Gudgeon welcomed the changes but said the Government had not engaged with the Seismic Tax Coalition, of which Kiwi Property, Local Government NZ and The Wellington Company are members. That coalition saw the treatment of tax deductibility and losses as the most essential issue to be dealt with.