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Income Tax Act 2007

Timing and quantifying rules - Depreciation

EE 17: Amount resulting from petroleum-related depreciable property calculation

You could also call this:

“Calculating the yearly wear and tear on oil-related equipment”

You use a special calculation to figure out how much your oil-related equipment has worn down over the year. This helps you compare it with other ways of working it out. Here’s how you do the sum:

First, you take the yearly rate that applies to your equipment. This rate depends on how you work out the wear and tear. You write this rate as a decimal number.

Next, you look at how much the equipment is worth. If you’re using the diminishing value method, you use the adjusted tax value at the end of the income year, before taking off any wear and tear for that year. If you’re using the straight-line method, you use how much the equipment cost you to buy. Sometimes, there might be a different way to work out the cost, which you can find in section EE 18.

Then, you count the number of days in the income year that you owned the equipment and had it ready to use, even if you didn’t actually use it every day.

Finally, you multiply the yearly rate by the value (or cost) and by the number of days. Then you divide this answer by 365.

This gives you the amount you need for comparing with other calculations about how much your equipment has worn down.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1514546.

Topics:
Money and consumer rights > Taxes
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EE 16: Amount resulting from standard calculation, or

“How to calculate depreciation for business assets”

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EE 18: Cost: change from diminishing value to straight-line method, or

“How to adjust cost when switching depreciation methods”

Part E Timing and quantifying rules
Depreciation

EE 17Amount resulting from petroleum-related depreciable property calculation

  1. For the purposes of the comparison of amounts required by section EE 14(2), the amount dealt with in this section is calculated using the formula—

    annual rate × value or cost × days ÷ 365.

    Where:

    • The items in the formula are defined in subsections (3) to (5).

    • Annual rate is the annual rate that, in the income year, applies to the item of depreciable property under the depreciation method that the person uses for the item. It is expressed as a decimal.

    • Value or cost is,—

    • when the person uses the diminishing value method, the item’s adjusted tax value at the end of the income year before the deduction of an amount of depreciation loss for the item for the income year:
      1. when the person uses the straight-line method, the item’s cost to the person; a variation to cost is in section EE 18.

        1. Days is the number of whole or part days in the income year on which—

        2. the person owns the item; and
          1. the person uses the item or has it available for use for any purpose.

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