Tax relief off the cards for earthquake-prone apartment owners

Wellington apartment owners are struggling to find the money to pay for earthquake strengthening. Photo / Mark Mitchell

The Government has shut down a desperate bid from Wellington City Council to get financial help for owners of earthquake-prone apartment buildings.

The council floated the idea of tax relief in its Briefing to Incoming Ministers, even though it didn't really have a plan for how that would work.

It suggested earthquake strengthening should be brought in line with asbestos removal to incentivise property owners to undertake the work.

In the UK, for example, the cost of asbestos removal, including assessment and professional fees, can be set against company taxable profits.

City Council chief resilience officer Mike Mendonça told the Herald it was preferable for tax incentives to be put in place before an earthquake to support owners.

But he admitted the council didn't have a specific plan for how that would work.

"We appreciate that this is not simple and we have not developed a detailed model. We can't just roll out a template from overseas, and we realise that most apartment owners are usually not companies that are set up for this kind of incentive.

"But we feel that the policy settings could be more supportive of the Government's intention around seismic strengthening."

Wellington apartment owner Michael Cummins speaks with New Zealand Herald reporter Georgina Campbell about the escalating costs to strengthen his building. Photo / Mark Mitchell

Wellington apartment owners across the capital are facing sleepless nights, losing their homes, and are on the brink of "financial disaster".

They live in buildings that have been deemed earthquake prone, meaning they have a rating of less than 34 per cent of the New Building Standard.

Some owners are facing up to $400,000 for their share of the cost to get the buildings strengthened.

Led by Inner City Wellington, a residents' association, they say they're funding public safety outcomes even though their buildings are not used by the public.

Building and Construction Minister Poto Williams said the Government was not considering a tax relief scheme for owners of earthquake-prone buildings at this time.

Seismic strengthening work is treated by Inland Revenue as capital expenditure, so deductions are not permitted, Williams said.

Building and Construction Minister Poto Williams. Photo / John Borren

As part of the response to the economic impact of Covid-19 the Government reintroduced building depreciation for commercial and industrial buildings, which included seismic costs.

"This strikes the right balance between supporting capital expenditure, including in seismic strengthening, and maintaining a responsible fiscal policy", Williams said.

She said there were already several initiatives to assist building owners with the cost of seismic strengthening outside of the tax system, including a new Government loan scheme.

It's designed for owner-occupiers facing financial hardship by meeting their contribution to strengthening costs, like having to sell their home.

But the scheme has been criticised for being too exclusive.

Applications opened in September 2020 for individual loans of up to $250,000.

But as of last week no applications have been lodged, just 25 expressions of interest.

"As the documentation required to support an application, like an engineering report for example, is provided by third parties, we expect it may take some more time before people are in a position to lodge an application, a Kāinga Ora Homes and Communities spokesperson said.

"There are also steps unit owners need to take, like agreeing on the remediation costs for each dwelling, before applying as well."

Inner City Wellington submitted to the Tax Working Group in 2018 that a system of rebates and transfers were required.

"To provide financial recognition that commercial and residential private owners are funding a public safety outcome through mandatory seismic strengthening of existing buildings."

The group argued a maximum threshold could be set at 33 per cent of the owner's share of the project cost.

"If donations to registered charities are eligible for a 33 per cent rebate on tax, then private contributions toward public good outcomes should also be eligible for similar rebates."

But the strongest call from Inner City Wellington is for the Government to review earthquake-prone building provisions in the Building Act, which have put them in this position in the first place