Plain language law

New Zealand law explained for everyone

Income Tax Act 2007

Timing and quantifying rules - Depreciation

EE 36: Using economic rate or provisional rate instead of special rate

You could also call this:

“When you can use different rates to calculate item depreciation”

You can use a different rate to depreciate an item instead of its special rate. You can use the economic rate or a provisional rate that applies to the item. However, there are some rules you need to follow.

You can’t use the economic rate or provisional rate if all of these things are true:

The item has a special rate that is higher than the economic rate. You used this special rate in a previous year. In a later year, the item’s value goes down as fast as or faster than the special rate. It looks like you want to change to the economic rate or provisional rate just to put off getting your depreciation deduction.

If all of these things are true, you must keep using the special rate. This is to stop people from trying to pay less tax by changing rates when it’s not really fair.

Remember, depreciation is about how much value an item loses over time. The law wants to make sure you’re using the right rate to calculate this loss in value.

This text is automatically generated. It might be out of date or be missing some parts. Find out more about how we do this.

View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1514627.

Topics:
Money and consumer rights > Taxes
Previous

EE 35: Special rate or provisional rate, or

“How to set special or provisional depreciation rates for certain assets”

Next

EE 37: Improvements, or

“How to handle tax for improvements to depreciable assets”

Part E Timing and quantifying rules
Depreciation

EE 36Using economic rate or provisional rate instead of special rate

  1. A person may depreciate an item to which a special rate applies by applying, instead, the economic rate applicable to the item or a provisional rate applicable to the item. This subsection is overridden by subsection (2).

  2. The person must not depreciate the item by applying the economic rate or the provisional rate, if—

  3. a special rate applies to the item; and
    1. the special rate is higher than the economic rate; and
      1. the person applies the special rate to the item for an income year; and
        1. in a later income year, the item’s market value declines at a rate equal to or greater than the special rate; and
          1. it is a reasonable conclusion from all the circumstances of the case that the person’s purpose, or 1 of the person’s purposes, in wanting to change from the special rate to the economic rate or the provisional rate for the later income year is to enable the person to defer the deduction that the person is allowed for the amount of depreciation loss for the item’s decline in value.

            Compare