The IRD have come out with a warning about insurance payments in the event of a claim. If you receive any insurance payments, tax could be payable on it.
If you’re a business or rental property owner, you may need to declare some insurance payments in your income tax and GST returns. These could affect the amount of tax you should legally pay. For example, the following insurance payments are taxable:
•loss of profits
•loss of rent
•reimbursement of business expenses
•destroyed or depreciated assets.
Some common mistakes include not declaring insurance payments as income, not accounting for GST or not returning depreciation recovered when the payment is for a depreciable asset. Another area that one should consider is the payment of loss of revenue cover.
To avoid errors, you should keep all records relating to insurance payments for your business or rental property or ask your accountant or tax agent for help with this issue.
The Christchurch disaster has made the IRD aware of this and they now have insurance payments in their sights as a source of tax avoidance.
Any questions you have regarding your unique situation, please give us a call. We make the complicated simple!