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Income Tax Act 2007

Timing and quantifying rules - Depreciation

EE 1: What this subpart does

You could also call this:

“This subpart explains how to calculate depreciation loss and recovery income for property”

This part of the law explains how to figure out the amount of money you can claim for wear and tear on your property, and how much money you might need to pay back if you sell or get rid of that property.

You can claim money for wear and tear (called depreciation loss) on your property if:

  • You own the property
  • The property can be depreciated (which means it loses value over time)
  • You use the property or have it ready to use during the year
  • The amount is calculated using specific rules

You might need to pay back some money (called depreciation recovery income) if:

  • You own the property
  • The property can be depreciated
  • You sell the property or something special happens to it
  • The amount is calculated using specific rules

The law treats depreciation loss as happening in the year it’s calculated, and depreciation recovery income as being earned in the year it’s calculated.

If you use your property for research, development, or market development, you might be able to choose when to claim your depreciation loss.

There are special rules for calculating depreciation loss when you only use part of your property for business.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1514491.

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EE 2: Nature of ownership of item, or

“Explaining what it means to own something that can lose value”

Part E Timing and quantifying rules
Depreciation

EE 1What this subpart does

  1. This subpart—

  2. quantifies the amount of depreciation loss for which a person is allowed a deduction if the provisions of Part D (Deductions) are met; and
    1. quantifies the amount of depreciation recovery income that is income under Part C (Income).

      1. A person has an amount of depreciation loss for an item for an income year if—

      2. the person owns an item of property, as described in sections EE 2 to EE 5; and
        1. the item is depreciable property, as described in sections EE 6 to EE 8; and
          1. the item is used, or is available for use, by the person in the income year; and
            1. the amount of depreciation loss is calculated for the person, the item, and the income year under sections EE 9 to EE 11.

              1. A person has an amount of depreciation recovery income for an item for an income year if—

              2. the person owns an item of property, as described in sections EE 2 to EE 5; and
                1. the item is depreciable property, as described in sections EE 6 to EE 8; and
                  1. the item is disposed of or an event of a kind described in section EE 47 or EE 52 occurs; and
                    1. the amount of depreciation recovery income is calculated for the person, the item, and the income year under any of sections EE 22(5), EE 38(5), EE 48(1), EE 49(2), EE 51(3), EE 52(3), EZ 23B, and EZ 23BB (which relate to property, and interests in property, acquired after depreciable property was affected by the Canterbury earthquakes).

                      1. To avoid doubt,—

                      2. an amount of depreciation loss is treated as being incurred in the income year for which it is calculated; and
                        1. an amount of depreciation recovery income is treated as being derived in the income year for which it is calculated.

                          1. A person who in an income year uses an item for research or development or for market development that gives rise to a deduction allocated under section EJ 22 (Deductions for market development: product of research, development), and as a result has an amount of depreciation loss for the item for the income year, may choose to allocate all or part of the deduction for the depreciation loss—

                          2. to an income year after the income year for which the person has the depreciation loss; and
                            1. in the way required by section EJ 23 (Allocation of deductions for research, development, and resulting market development).

                              1. Subpart DE (Motor vehicle expenditure) and section EE 50 contain rules for calculating the amount of deduction available for depreciation loss in circumstances in which an item of property is only partly used or available for use in a way that satisfies the general permission.

                              Compare
                              Notes
                              • Section EE 1(3)(c): amended, on , by section 58 of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                              • Section EE 1(3)(d): amended (with effect on 4 September 2010), on , by section 48 of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
                              • Section EE 1(3)(d): amended (with effect on 4 September 2010), on , by section 23 of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).