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Income Tax Act 2007

Timing and quantifying rules - Depreciation

EE 27: Economic rate for certain depreciable property

You could also call this:

“Setting depreciation rates for certain property types”

This section explains how the Commissioner sets the economic depreciation rate for certain types of depreciable property. It doesn’t apply to buildings, fixed life intangible property, excluded depreciable property, or property with rates set under section EE 29 or EE 30.

The Commissioner sets the rate by following a procedure and issuing a determination. To set the diminishing value rate, the Commissioner uses a formula, rounds the result to the nearest rate in schedule 11, and may set the same rate for similar items to reduce compliance costs.

The formula used is: 2 divided by the estimated useful life of the item in years.

You should know that the Commissioner considers things like the calculated rate for each kind of item and how much it might reduce compliance costs when setting rates for similar items.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1514588.

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EE 26: Setting of economic depreciation rate, or

“How the economic depreciation rate is determined for different types of property”

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“How the tax office sets depreciation rates for buildings”

Part E Timing and quantifying rules
Depreciation

EE 27Economic rate for certain depreciable property

  1. This section is about setting the economic depreciation rate that applies to a kind of item of depreciable property.

  2. This section does not apply to buildings, fixed life intangible property, excluded depreciable property, or property for which an economic rate is set under section EE 29 or EE 30.

  3. The Commissioner sets the rate from time to time by—

  4. following the procedure set out in this section; and
    1. issuing a determination under section 91AAF of the Tax Administration Act 1994.

      1. To set the diminishing value rate for a kind of item of depreciable property, the Commissioner—

      2. obtains a figure by applying the formula in subsection (5) to items of that kind; and
        1. rounds the figure up or down to the nearest rate specified in schedule 11, column 1 (New banded rates of depreciation); and
          1. sets the same rate for some or all of the kinds of items of depreciable property that are similar to one another, if the Commissioner thinks it is appropriate to do so having regard to—
            1. the rate calculated for each kind; and
              1. the reduction in compliance costs that is likely to be achieved.

              2. The formula is—

                2 ÷ estimated useful life.

                Where:

                • In the formula, estimated useful life is the estimated useful life of the item expressed in years.

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                Notes
                • Section EE 27 list of defined terms building: inserted (with effect on 30 July 2009), on , by section 84 of the Taxation (Budget Measures) Act 2010 (2010 No 27).