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Income Tax Act 2007

Timing and quantifying rules - Depreciation

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

You could also call this:

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

This law talks about what happens when you get a property item from someone you know (like a friend or family member) on or after 24 September 1997. It’s about how much you can lower the value of that item for tax purposes each year.

The law says that when you get the item, the cost you use to figure out how much you can lower its value each year might not be what you actually paid for it. Instead, it might be less than that amount, depending on how the person you got it from was using it.

You also can’t lower the value of the item faster than the person you got it from was doing. You have to use the same or a slower rate.

There are some exceptions to these rules. For example, if the cost you paid is counted as income for the person you got it from, or if you got the item as part of a divorce settlement, different rules might apply.

The law also mentions some special cases, like when the item is a type of property that doesn’t lose value over time, or when there’s been a change in the rates allowed by law.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1514638.

Topics:
Money and consumer rights > Taxes
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Part E Timing and quantifying rules
Depreciation

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

  1. This section applies when, on or after 24 September 1997, a person (person A) acquires, directly or indirectly, an item of property from an associated person to whom any of subsections (2) to (6) applies. The income year referred to is the income year of the associated person.

  2. The associated person is allowed a deduction for an amount of depreciation loss for the item for the income year in which person A acquires it, or would have been allowed the deduction if section EE 11(1) had not applied, or if the rate for the item was not 0% in the case of a building with a rate of 0%.

  3. The associated person was allowed a deduction for an amount of depreciation loss for the income year before that in which person A acquired it, or would have been allowed a deduction if the rate for the item was not 0% in the case of a building with a rate of 0%.

  4. The associated person has been allowed a deduction for the item under section DZ 9 (Premium paid on land leased before 1 April 1993)—

  5. for the income year in which person A acquired it; or
    1. for the income year before that in which person A acquired it; or
      1. would have been allowed a deduction in either income year if they had incurred a cost for the item for which they were denied any other deduction.

        1. The associated person would have been allowed a deduction for an amount of depreciation loss for the item—

        2. for the income year in which person A acquired it, if they had incurred a cost for the item for which they were denied any other deduction and if section EE 11(1) had not applied; or
          1. for the income year before that in which person A acquired it, if they had incurred a cost for the item for which they were denied any other deduction.

            1. The associated person would have been a person to whom any of subsections (2) to (5) applied, if they had not made an election under section EE 8.

            2. For the purposes of determining the amount of depreciation loss that person A has, the cost of the item to person A is treated as 1 of the following:

            3. if section EE 58 applies to set a base value for the item, the lesser of—
              1. the cost of the item to person A:
                1. the item’s market value when the associated person starts to use it, or to have it available for use, for the purpose of deriving assessable income or carrying on a business for the purpose of deriving assessable income; or
                2. if section EE 58 does not apply, the lesser of—
                  1. the cost of the item to person A:
                    1. the cost of the item to the associated person.

                    2. Subsection (7) does not apply if—

                    3. the item is not depreciable intangible property, and the Commissioner decides that it is appropriate to use the cost of the item to person A for the purposes of determining the amount of depreciation loss that person A has for the item:
                      1. the cost to person A is income of the associated person, other than under section EE 48(1):
                        1. person A acquires the item on a settlement of relationship property to which section FB 21 (Depreciable property) applies.

                          1. The annual rate that person A applies to the item must be 1 of the following:

                          2. when person A uses the same depreciation method for the item as that used by the associated person for it, the annual rate must be no more than the annual rate that the associated person applied to it:
                            1. when person A uses a depreciation method for the item that is different from the method the associated person used for it, the annual rate must be no more than a rate equivalent to the rate that the associated person applied to it, as determined by schedule 10 (Straight-line equivalents of diminishing value rates of depreciation).

                              1. Subsection (9) does not apply when person A may, due to a change of annual rate by a statute, apply an annual rate that is more than the annual rate that the associated person applied.

                              2. Subsection (9) does not apply to an item of fixed life intangible property whose rate is set in section EE 33.

                              3. This section—

                              4. is overridden by section EE 41:
                                1. does not apply to a bequest of property when subpart FC (Distribution, transmission, and gifts of property) applies to it and the property is disposed of at market value.

                                  Compare
                                  Notes
                                  • Section EE 40(2): amended (with effect on 1 April 2011), on , by section 79(1) (and see section 79(3) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
                                  • Section EE 40(3): amended (with effect on 1 April 2011), on , by section 79(2) (and see section 79(3) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
                                  • Section EE 40(9B) heading: inserted (with effect on 1 April 2020), on , by section 35(1) (and see section 35(3) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
                                  • Section EE 40(9B): inserted (with effect on 1 April 2020), on , by section 35(1) (and see section 35(3) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).
                                  • Section EE 40(10): amended (with effect on 1 April 2008), on , by section 35(2) (and see section 35(4) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).