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DO 5: Expenditure on land: planting of listed horticultural plants
or “Tax deductions for planting specific horticultural plants on business land”
You could also call this:

“Tax deduction for replacing plants in horticultural businesses”

If you run a horticultural business on land in New Zealand, you can get a tax deduction for replacing certain plants. This applies when you plant or regraft a listed horticultural plant as a replacement in a given year.

You can claim this deduction if you spend money on replacing a listed plant, the replacement helps your business, you don’t sell the land, and you choose to apply for this deduction in your tax return.

The amount you can deduct depends on whether you’ve claimed this deduction in the past two years. If you haven’t claimed it before, or only once, you can deduct 7.5% of what you spent on the replacement, or a higher percentage if you replaced a larger area.

If you’ve claimed this deduction in both of the last two years, the amount you can deduct is limited. It’s either 7.5% of your spending (or more if you replaced a larger area), or it’s calculated using a formula that takes into account how much of your land was replanted in the last two years.

You can only claim this deduction for the current year, not for future years. This deduction is allowed even if it’s for a capital expense, but other tax rules still apply.

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Next up: DO 7: Accounting for expenditure on listed horticultural plants under sections DO 5 and DO 6

or “Rules for tracking spending on horticultural plants for tax deductions”
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Part D Deductions
Farming and aquacultural business expenditure

DO 6Expenditure on land: horticultural replacement planting

  1. This section applies to a person who carries on a horticultural business on land in New Zealand and who, in an income year (the current income year)—

  2. plants, or causes to be planted, on the land a listed horticultural plant as a replacement plant:
    1. regrafts, or causes to be regrafted, a listed horticultural plant on the land as a replacement plant.

      1. The person is allowed a deduction of an amount set out in 1 of subsections (3) and (5) if, in the current income year,—

      2. the person incurs expenditure in replacing a listed horticultural plant; and
        1. the replacement plant benefits the business; and
          1. the person does not dispose of the land on which the listed horticultural plant is cultivated; and
            1. the person chooses that this section apply to the expenditure by making a return of income for the current income year on that basis.

              1. If the person is denied a deduction under this section for 1 or both of the 2 income years preceding the current income year, the amount of the deduction under subsection (2) is calculated using the formula—

                replacement expenditure × 7.5% ÷ fraction.

                Where:

                • In the formula in subsection (3),—

                • replacement expenditure is the amount of the expenditure incurred by the person in replacing the listed horticultural plant:
                  1. fraction is the greater of 7.5% and the replaced area fraction for the planting for the current income year.

                    1. If the person has been allowed a deduction under this section for a planting for both of the 2 income years preceding the current income year, the amount of the deduction under subsection (2) is the lesser of—

                    2. the amount that is calculated using the formula in subsection (6):
                      1. the amount that is calculated using the formula in subsection (8).

                        1. The first amount is calculated using the formula—

                          replacement expenditure × 7.5% ÷ fraction.

                          Where:

                          • In the formula in subsection (6),—

                          • replacement expenditure is the amount of the expenditure incurred by the person:
                            1. fraction is the greater of 7.5% and the replaced area fraction for the planting for the current income year.

                              1. The second amount is calculated using the formula—

                                replacement expenditure × (15% − earlier fraction − later fraction)÷ replaced area fraction.

                                Where:

                                • In the formula in subsection (8),—

                                • replacement expenditure is the amount of the expenditure incurred by the person:
                                  1. earlier fraction is the lesser of 7.5% and the replaced area fraction for the planting for the earlier of the 2 income years preceding the current income year:
                                    1. later fraction is the lesser of 7.5% and the replaced area fraction for the planting for the later of the 2 income years preceding the current income year:
                                      1. replaced area fraction is the replaced area fraction for the planting for the current income year.

                                        1. The deduction is allocated to the current income year.

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

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