Building owners seek tax relief

17:00, Sep 02 2012
HIGH RISE: Owners of older buildings in Lambton Quay face expensive insurance premiums as a result of earthquake risk.
HIGH RISE: Owners of older buildings in Lambton Quay face expensive insurance premiums as a result of earthquake risk.

Wellington owners of earthquake-prone commercial buildings might receive financial relief from the Government to help ease the massive cost burden of strengthening their properties.

The Government is contemplating some form of tax benefit for earthquake strengthening work after tax changes removed the ability to depreciate major building work two years ago.

Throughout the country, public buildings are being closed for repairs and councils are reminding private owners of their obligations after Christchurch's devastating earthquakes.

Those lobbying for aid include the commercial property group, the Property Council of New Zealand.

Immediate past president Chris Gudgeon said without incentives seismic strengthening was "completely uneconomic" for commercial landlords.

"It really needs to be looked at for all property owners and from a ‘New Zealand Inc' point of view, it's this whole concept of earthquake strengthening as a public good. Many building owners will be facing reasonably significant capital outlays to strengthen buildings for no commercial return.


"That's why the tax system needs to kind of recognise that."

Insurance premiums have soared for pre-1935 buildings, with Lambton Quay among the hardest hit. Government ministers will not comment until the Royal Commission of Inquiry into the Christchurch earthquakes has reported back in November.

The Historic Places Trust estimates there are 15,000 to 25,000 non-residential buildings that are potentially quake-prone.

Some 723 listed heritage buildings have been identified as potentially risky so far but the trust says that figure might be closer to 3000.

Deloitte NZ chief executive Thomas Pippos said the nub of the issue was a change in the tax treatment of buildings two years ago. Less structural work might still be deductible as a maintenance cost, but the ability to capitalise and depreciate major building work had been wiped.

The problem businesses had with earthquake strengthening was that they could not recoup their costs because it did not change the building's functionality, Pippos said.

"The only thing that earthquake strengthening does do is it enables you to maintain a tenant, because in some instances, tenants are pretty wary about being in buildings that aren't sufficiently up to the code."

Tax-wise, he felt there were parallels with the leaky building situation.

The Government had stepped in even though most leaky homes were not within the tax base, whereas most quake-prone buildings were commercial and within the tax base.

Gudgeon, who is chief executive of Kiwi Income Property Trust, said earthquake strengthening should be treated as a business cost.

"Dealing with structural obsolescence is a cost of doing business just the same as dealing with the obsolescence of your photocopier or your computer."'

Revenue Minister Peter Dunne said policy work was being done on earthquake-prone buildings but nothing would be decided until the Royal Commission made its next report. "It would be pre-emptive to come to any decision about whether the Government would be in a position to provide assistance on this until that has been completed.”

The commission is due to release its report on November 12.