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Inland Revenue

Tax Policy

PUBLISHED 4 August 2004

Changes to treatment of environmental costs

The rules on tax deductibility for business environmental expenditure such as the costs of preventing, remedying or mitigating the discharge of contaminants will be expanded and clarified. The government announced today that the changes, which are intended to encourage greater environmental responsibility on the part of businesses, will be included in the taxation bill planned for introduction in November. For more information see the government's media statement.

Hon Dr Michael Cullen
Minister of Revenue

Hon Marian Hobbs
Minister for the Environment


Business-friendly, environment-friendly tax change

Businesses will be encouraged to be more environmentally responsible through tax changes announced today by Revenue Minister Michael Cullen and Minister for the Environment Marian Hobbs.

The government will make available tax deductions for environmental expenditure such as preventing, remedying or mitigating the discharge of contaminants, monitoring the effects of pollution and testing options for dealing with environmental issues.

The changes, which are expected to cost $20 million a year in foregone revenue over the first five years, will be included in the taxation bill planned for introduction in November, following final consultation, and will apply for income years beginning on or after enactment of the legislation.

"It makes consummate sense to ensure that environmental costs, like other business costs, are taken into account for tax purposes," the Ministers said.

"The present rules are rife with uncertainty about the existing scope of tax deductions that are available for business environmental expenditure – such as that for site restoration.

"The result can be the incorrect taxation of a business's income, and a disincentive for businesses to go beyond the minimum legal requirements for dealing with environmental issues.

"The changes include minimum rates of depreciation for different categories of environmental expenditure. The changes will also allow Inland Revenue to consult with taxpayers and then issue category-specific depreciation rates, such as for riparian planting to avoid contamination of a waterway.

"A voluntary site restoration fund will be introduced so that business taxpayers can obtain tax deductions and refunds for restoring contaminated sites. Businesses can choose to make contributions to the fund, which will reduce their tax liability. Refunds, which will be taxable, will be given on cessation of business to help meet restoration costs," they said.

Media inquiries: Patricia Herbert [press secretary, Dr Cullen] 4719412 or 0212709013.
Trevor Henry [press secretary, Marian Hobbs] 471-9131 or 021-843-679
Technical inquiries to Helen Mackenzie [tax advisor, Dr Cullen’s office] 471-9728