Dealing with business damages, losses and insurance

If you have a business, you may need to consider destroyed or damaged property or assets, insurance payouts and clean-up costs after an adverse or emergency event. 

The following matters are complex, and we suggest you talk to a tax agent if you can. 

Destroyed assets

If you have an asset (other than a building) that is destroyed or damaged beyond repair, you can treat it as disposed of or sold. This means you might have a tax gain or loss.  

If you receive sale or insurance receipts that are less than your remaining book value for the asset, you can claim the net amount as a deduction. Our website and Depreciation - a guide for business - IR270 have more information. 

Depreciation

This rule does not apply to farming, horticultural and forestry improvements such as tracks, yards, bores or wells. These improvements are amortisable, which means you spread the cost over the time you use them.

Insurance payouts 

You may need to pay tax on insurance payouts for loss of income or profits. 

If you're registered for GST (or required to be registered) and receive an insurance payout relating to your taxable activity, you will usually need to account for GST on the payout. 

If the payout is for lost trading stock (for example, livestock or sales goods) or consumables (for example, hay or raw materials) it is taxable income. 

If the payout is for depreciable capital assets, you must include it when you calculate the amount of depreciation recovered income for past depreciation claims. Some examples of depreciable capital assets are: 

• barns
• sheds
• manufacturing plant.

If you received an insurance payout for property that is pooled for depreciation, decrease the book value of the pool by the amount of the insurance payout. 

Usually, insurance payouts count as income in the year the emergency event happened, if you can work out the extent of the damage at that time. For some events, you may be able to rollover the payout into a later year. You will need to check the specific event. 

List of events where we offer extra help 

Building demolition costs

You cannot deduct building demolition costs, except for temporary buildings. 

A temporary building has a limited life and will be demolished or removed: 

• when or before construction has finished on the site where the temporary building was put up 
• when the plant or machinery, that the temporary building was put up to house, is removed or replaced. 

Clean-up costs

It may be difficult to work out if clean-up costs are capital or revenue. We recommend you discuss this with a tax advisor.