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EE 38: Items of low value
or “Tax deductions for low-cost business items”
You could also call this:

“Rules for business items you no longer use”

This part of the law talks about what happens when you have something you used to use for your business, but you don’t use it anymore. It’s called ‘Items no longer used’.

You have to follow these rules if you have something that you can’t use anymore or if it’s no longer available because the time for testing geothermal energy has ended. This doesn’t usually apply to buildings, unless the building has been badly damaged and you can’t use it to make money anymore.

If you have something like this, you might have what’s called a ‘depreciation loss’. This happens when:

  • You’re not using the item to make money anymore
  • You (or anyone connected to you) don’t plan to use it to make money in the future
  • It would cost more to get rid of the item than you would get back by selling it

If all of these things are true, the amount of your depreciation loss is how much the item was worth at the start of the year for tax purposes. At the end of the year, for tax purposes, the item is worth nothing.

Remember, these rules don’t apply if you’ve been using a special method called the ‘pool method’ to calculate depreciation.

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Next up: EE 40: Transfer of depreciable property on or after 24 September 1997

or “Rules for reducing the value of property received from associates after September 1997”
Next

Part E Timing and quantifying rules
Depreciation

EE 39Items no longer used

  1. This section applies when a person in an income year has an item of depreciable property that—

  2. is no longer used or, because the geothermal energy proving period has ended, becomes unavailable for use under section EE 6(4); and
    1. is not a building, unless the item meets the requirements of subsection (2); and
      1. has not been depreciated using the pool method.

        1. This section applies to a building that meets the requirements of subsection (1)(a) and (c) if—

        2. the building has been irreparably damaged and rendered useless for the purpose of deriving income; and
          1. the damage occurs—
            1. in the 2005–06 income year or a later income year:
              1. as a result of the extreme climatic conditions that occurred during the month of February 2004 in New Zealand:
                1. as a result of the storm event that occurred during the month of July 2004 in the Bay of Plenty area; and
                2. the damage is caused other than as a result of the action or failure to act of the person, an agent of the person, or an associated person.

                  1. The person has an amount of depreciation loss under this section and under no other provision of this subpart.

                  2. The person has an amount of depreciation loss if—

                  3. they no longer use the item in deriving assessable income or carrying on a business for the purpose of deriving assessable income; and
                    1. neither they nor a person associated with them intends to use the item in deriving assessable income or carrying on a business for the purpose of deriving assessable income; and
                      1. the costs of disposing of the item would be more than any consideration they could derive from disposing of it.

                        1. The amount of depreciation loss is the item’s adjusted tax value at the start of the income year.

                        2. The item’s adjusted tax value at the end of the income year is zero.

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                        Notes
                        • Section EE 39 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).