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Income Tax Act 2007

Timing and quantifying rules - Depreciation

EE 12: Depreciation methods

You could also call this:

“How to calculate the decrease in value of your property over time”

A depreciation method is a way you can work out how much your property loses in value over time. The government has set up three main methods you can use:

The diminishing value method: You can use this for most things, but not for fixed life intangible property or certain pooled items from the 1992-93 income year.
The straight-line method: You can use this for any depreciable property. You must use it for fixed life intangible property.
The pool method: You can use this for poolable property, but not for fixed life intangible property. You must use it for certain items from the 1992-93 income year.

You get to choose which method you want to use for each piece of property you own. You show your choice by using that method when you file your tax return for the year.

If you pick the diminishing value or straight-line method, you have to stick with it for that item and that income year. You can’t change your mind halfway through.

If you choose the pool method, you have to keep using it for that item not just for the current income year, but also for future years as long as you still own the item and it’s still poolable property.

The government can also set special rates or maximum pooling values for depreciation. These are decided by the Commissioner and are written in the Tax Administration Act 1994.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1514526.

Topics:

Money and consumer rights > Taxes

EE 11: Calculation rule: income year in which item disposed of, or

“How to calculate depreciation in the year you dispose of an item”

EE 13: Application of sections EE 14 to EE 19, or

“Rules for calculating how much your assets lose value over time”

Part E Timing and quantifying rules
Depreciation

EE 12Depreciation methods

Depreciation method means—
a method that a person may use to calculate an amount of depreciation loss:
a rate determined by the Commissioner under section 91AAF or 91AAG of the Tax Administration Act 1994:
a maximum pooling value determined by the Commissioner under section 91AAL of that Act.

The depreciation methods are—
the diminishing value method, which—
1. may be used for any item of depreciable property except one referred to in subparagraph (ii) or (iii); and
2. must not be used for an item of fixed life intangible property; and
3. must not be used for an item of property in the circumstances described in section EZ 9 (Pool method for items accounted for by globo method for 1992–93 income year):
the straight-line method, which—
1. may be used for any item of depreciable property; and
2. must be used for an item of fixed life intangible property:
the pool method, which—
1. may be used for any item of poolable property except one referred to in subparagraph (ii); and
2. must not be used for an item of fixed life intangible property; and
3. must be used for an item of property in the circumstances described in section EZ 9.

A person chooses which of the depreciation methods they will use for each item of depreciable property they own.
The person chooses the method by using the chosen method for the item in their return of income for the income year for which they make the election.
If the person chooses the diminishing value method or the straight-line method, they must use the method for the item and the income year and must not change the election for the income year.
If the person chooses the pool method, they must use the method for the item and the income year and must not change the election for—
the income year; or
a later income year in which the item is still poolable property that they own.

Compare

2004 No 35 s EE 12