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DO 4: Improvements to farm land
or “Claiming money back for certain farm improvements”
You could also call this:

“Tax deductions for planting specific horticultural plants on business land”

When you run a farming, agricultural, or horticultural business on land in New Zealand where listed horticultural plants have been planted, you can get a tax deduction for the money spent on developing that land. This applies for any year when the planting helps your business.

You calculate the deduction using a special formula. The formula uses a rate set by the Commissioner for that type of plant and something called the ‘diminished value’ of what you spent.

You can’t get this deduction in the year you sell the land (if you own it) or stop running the business on that land (if you don’t own it).

If a plant stops existing or being used to make money, and you don’t get a deduction for replacing it under section DO 6, you can deduct the diminished value of what you spent on that plant.

If a plant stops existing or being used to make money, and you do get a deduction for replacing it under section DO 6, you can’t get a deduction under this section. But you can add the diminished value of the old plant to the values of the other plants still there at the end of the year.

This section overrules the general permission and the capital limitation in the tax rules, but other general limitations still apply.

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Next up: DO 6: Expenditure on land: horticultural replacement planting

or “Tax deduction for replacing plants in horticultural businesses”
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Part D Deductions
Farming and aquacultural business expenditure

DO 5Expenditure on land: planting of listed horticultural plants

  1. This section applies when—

  2. a person carries on a farming or agricultural business, including a horticultural business, on land in New Zealand; and
    1. the land has been developed by the planting of listed horticultural plants on the land.

      1. For an income year in which the planting benefits the business and for which subsection (3) does not apply, the person is allowed a deduction relating to expenditure incurred by the person, or by another person, in developing the land.

      2. The person is denied a deduction under subsection (2) for an income year in which—

      3. if the person owns the land, the person disposes of the land:
        1. if the person does not own the land, the person ceases carrying on the business on the land.

          1. For expenditure to which subsections (6) and (7) do not apply for the income year, the amount of the deduction under subsection (2) is calculated using the formula—

            rate × diminished value.

            Where:

            • In the formula,—

            • rate is the percentage rate determined for the kind of listed horticultural plant by the Commissioner under section 91AAB of the Tax Administration Act 1994:
              1. diminished value is the diminished value of the expenditure.

                1. If a listed horticultural plant in a planting of the person ceases in an income year to exist or to be used in deriving assessable income and the person has no deduction under section DO 6 for the income year for the expenditure incurred in replacing the listed horticultural plant,—

                2. the person is allowed a deduction:
                  1. the amount of the deduction is the diminished value of the expenditure on the listed horticultural plant at the time that the listed horticultural plant ceases to exist or to be used in deriving assessable income:
                    1. the deduction is allocated to the income year in which the listed horticultural plant ceases to exist or to be used in deriving income.

                      1. If a listed horticultural plant in a planting of the person ceases in an income year to exist or to be used in deriving assessable income and the person is allowed a deduction under section DO 6 for the income year for all or some of the expenditure incurred in replacing the listed horticultural plant,—

                      2. the person is not allowed a deduction under this section; and
                        1. the person may add the diminished value, immediately before the replacement, of the expenditure on the listed horticultural plant to the diminished values, at the end of the income year, of the expenditure on listed horticultural plants that are in the planting at the end of the income year; and
                          1. the person may choose the method of making the addition by applying the method in a return of income for the income year.

                            1. This section overrides the general permission and the capital limitation. The other general limitations still apply.

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                            Notes
                            • Section DO 5(4) formula: replaced (with effect on 1 April 2013 and applying for listed horticultural plants that are planted on land on or after the first day of the 2013–14 income year), on , by section 60(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).