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Income Tax Act 2007

Timing and quantifying rules - Depreciation

EE 30: Economic rate for plant, equipment, or building, with high residual value

You could also call this:

“How to set depreciation rates for high-value plant, equipment, or buildings”

This section explains how to set the economic depreciation rate for certain types of property. It applies to plant, equipment, or buildings that are worth more than 13.5% of their original cost at the end of their useful life. This doesn’t include fixed life intangible property or excluded depreciable property.

The Commissioner of Inland Revenue sets this rate by following a specific process and issuing a determination under section 91AAF of the Tax Administration Act 1994.

To set the rate, the Commissioner uses a formula and then rounds it to the nearest rate in schedule 11, column 1. The Commissioner can set the same rate for similar items to make things easier.

The formula used is: 1 − ((residual value ÷ cost) (1 ÷ estimated useful life)).

In this formula:

  • ‘Residual value’ is the higher of the estimated leftover market value or 13.5% of the cost.
  • ‘Cost’ is how much the items cost.
  • ‘Estimated useful life’ is defined in section EE 63.

This applies to plant or equipment bought on or after 1 April 2005, and buildings bought on or after 19 May 2005.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1514600.

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Part E Timing and quantifying rules
Depreciation

EE 30Economic rate for plant, equipment, or building, with high residual value

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

  2. the kind of depreciable property is not fixed life intangible property, or excluded depreciable property, for which an economic rate cannot be set; and
    1. the estimated residual market value for the item is more than 13.5% of cost; and
      1. the items are—
        1. plant or equipment acquired on or after 1 April 2005:
          1. buildings acquired on or after 19 May 2005.

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

          3. 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 (4) 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—

                        1 − ((residual value ÷ cost) (1 ÷ estimated useful life)).

                        Where:

                        • In the formula,—

                        • residual value is the greater of—
                          1. estimated residual market value, which is defined in section EE 67:
                            1. 13.5% of cost:
                            2. cost is the cost of items of the kind to which the formula is applied:
                              1. estimated useful life is defined in section EE 63.

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                                Notes
                                • Section EE 30(1)(b): amended (with effect on 1 April 2008), on , by section 118 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                • Section EE 30(3)(b): substituted (with effect on 1 April 2008), on (applying for the 2008–09 and later income years), by section 30(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
                                • Section EE 30 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).