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Income Tax Act 2007

Timing and quantifying rules - Depreciation

EE 21: Pool method: calculating amount of depreciation loss

You could also call this:

“How to work out the yearly value loss for a group of depreciating items”

When you have a group of things that lose value over time, like machines or computers, you can figure out how much value they lose in a year. This is called depreciation loss. Here’s how you do it:

First, you use a special math formula. The formula looks at how much the group was worth at the start of the year and at the end of the year. It also considers how fast the items lose value and how many months are in your tax year.

After you work out the depreciation loss amount, you take it away from how much the group was worth at the end of the year. This gives you the new value of the group.

The formula uses something called a rate. If all the items in the group lose value at the same speed, you use that rate. If they lose value at different speeds, you use the slowest rate.

You also need to know how much the group was worth at the start of the year. If it’s a new group, you start at zero.

For the end-of-year value, you look at how much the group is worth before taking away the depreciation loss. You might need to add or take away some amounts based on rules in section EE 22.

The number of months in your tax year is important too. It might not always be exactly 12 months.

By using this method, you can keep track of how much value your group of items loses over time for tax purposes.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1514561.

Topics:

Money and consumer rights > Taxes

EE 20: Application of sections EE 21 to EE 24, or

“Rules for calculating depreciation loss using the pool method”

EE 22: Cases affecting pool, or

“How the value of your pool of assets changes when you add, remove, or sell items”

Part E Timing and quantifying rules
Depreciation

EE 21Pool method: calculating amount of depreciation loss

The amount of depreciation loss that a person has for an income year for a pool of depreciable property is—
first, calculated under subsection (2); and
second, subtracted from the pool’s adjusted tax value at the end of the income year.

The amount of depreciation loss is calculated using the formula—
$rate × ((starting adjusted tax value + ending adjusted tax value) ÷ 2)× months ÷ 12.$

Where:
The items in the formula are defined in subsections (4) to (8).
Rate is the diminishing value rate. It is 1 of the following:
if the same rate applies to all items depreciated in the pool in the income year, that rate; or
if different rates apply to items depreciated in the pool in the income year,—
1. the lower of the rates, if there are 2 items in the pool; or
2. the lowest of the rates, if there are 3 or more items in the pool.

Starting adjusted tax value is—
the pool's adjusted tax value at the start of the income year, increased as applicable by the amount referred to in section EE 22(2)(b); or
zero, if the pool did not exist at the start of the income year.

Ending adjusted tax value is the pool's adjusted tax value at the end of the income year before the deduction of an amount of depreciation loss for the pool for the income year. The value is, as applicable,—
increased by the amounts referred to in section EE 22(1) and (2)(a):
decreased by the amount referred to in section EE 22(3).

Months, for a person, is the number of whole or part months in their income year, and the number may be more or less than 12.
Repealed

Compare

2004 No 35 s EE 21

Notes

Section EE 21(5) heading: substituted (with effect on 1 April 2008), on 6 October 2009, by section 117(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EE 21(5): substituted (with effect on 1 April 2008), on 6 October 2009, by section 117(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EE 21(6) heading: substituted (with effect on 1 April 2008), on 6 October 2009, by section 117(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EE 21(6): substituted (with effect on 1 April 2008), on 6 October 2009, by section 117(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EE 21(7) heading: substituted (with effect on 1 April 2008), on 6 October 2009, by section 117(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EE 21(7): substituted (with effect on 1 April 2008), on 6 October 2009, by section 117(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EE 21(8) heading: repealed (with effect on 1 April 2008), on 6 October 2009, by section 117(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EE 21(8): repealed (with effect on 1 April 2008), on 6 October 2009, by section 117(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).