Further to our article last week on depreciation recovery, it has been noted that the Canterbury earthquake and its aftershocks have resulted in the destruction of buildings, plant and equipment. This has given rise to further depreciation issues, namely the timing of a “deemed” sale of destroyed assets, and the deductibility of any loss when a building is not destroyed by an event beyond the owner’s control, but has to subsequently be destroyed as a consequence of such an event.

The concern around the timing of the deemed sale is that this “sale” arguably occurs at the date of the event that gave rise to the write-off, but the insurance proceeds may not be quantifiable for some time.

The proposed amendment is to provide that the “deemed sale” is to occur when the insurance proceeds can be reasonably estimated.

In relation to the subsequent destruction of buildings, the Government noted that after the Central New Zealand floods of 2004, the Income Tax Act was amended to allow a generic write-off for any loss on buildings that were destroyed by an event beyond the owner’s control (and floods and earthquakes are good examples of such events). The government agrees this should be extended to buildings destroyed by the Canterbury earthquake and aftershocks, and any buildings that must be destroyed later, even if not destroyed by the earthquakes themselves.

It should also be noted that the Minister of Revenue confirmed that the law was clarified so that disposal and demolition costs incurred in relation to insured buildings irreparably damaged by the earthquake would be dealt with as part of the disposal of the asset.

The disposal and demolition cost changes were made by way of Supplementary Order Paper 187 to the Taxation (GST and Remedial Matters) Bill 2010 which was enacted on 20 December 2010.

The changes ensure that the disposal and demolition costs of an insured earthquake damaged building are in effect deductible.

How it affects you

If you had a building, plant, or equipment that has been destroyed by the Canterbury earthquakes, or that have been red stickered since, you are likely to be entitled to the proposed relief.

We recommend that you keep your advisor appraised of you position so that any tax relief available can be sought.


In a recent Australian Federal Court decision, guidance was given on the circumstances in which Courts will extend the application of director’s duties to individuals who, although never formally appointed as directors, are nonetheless substantially involved in the operation of a company. This case also gives some guidance as to what could equally happen in a New Zealand Court, as the concept of “de facto directors” is contemplated by the New Zealand Companies Act 1993.

This case considered the role played by Mr G in Company A, even though he was not a named director of that company.

The Court held that there were a large number of actions carried out by Mr G which would not typically be expected of a director. These include:

  • Negotiating the acquisition of a mining interest by Company A. This was a central plank of Company A’s business operations and would not ordinarily be delegated by a Board to a person who was not a director.
  • Deciding the contents of the prospectus for Company A’s proposed capital raising, in circumstances where Mr G’s functions were not limited to professional or advisory duties that were part of the overall planning and verification process. 

  •  Finding investors in order to raise capital for Company A.

  • Corresponding with lawyers on behalf of Company A which evidenced that Mr G was reasonably perceived by an outsider dealing with the company as a director or senior officer.

  • Directing dealings that went to the heart of Company A’s financial standing. 
Having found that Mr G was a director, the Court then held that, given the various eventualities, Mr G had first misused his position as a director of Company A for personal advantage and secondly has misapplied two cheques totaling $152,750. The Court found, therefore, that Mr G had breached his fiduciary duty to Company A, and had failed to act in good faith and in the best interests of Company A. As such, Mr G was liable to account to Company A for the personal benefits obtained by his conduct.

How it affects you

Although this is an Australian Court Case, similar rules apply in New Zealand. This case demonstrates that it is your actions, rather than the official paper work, that determines who is a director of a company. 


There is an Addendum to the Law Society Agreement for Sale and Purchase form that incorporates the recent changes in the GST rules.

The Government has announced that changes will be made to the financial hardship rules of the Kiwisaver regime, to make it easier for people affected by the Canterbury earthquake to withdraw their Kiwisaver contributions.

A conservative estimate of the number of trusts in NZ suggests there is 1 trust for every 18 people.


“ Inflation is taxation without legislation”.

Milton Friedman

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