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Income Tax Act 2007

Timing and quantifying rules - Depreciation

EE 41: Transfer of depreciable property on certain amalgamations on or after 14 May 2002

You could also call this:

“Rules for property transfer during company mergers after 14 May 2002”

This section explains what happens when a company acquires property from another company during a merger on or after 14 May 2002. You need to know this if you’re involved in merging companies.

When one company (called the amalgamated company) gets property from another company (called the amalgamating company) during a merger, there are special rules about how much the property is worth for tax purposes.

The value of the property is usually the lower of two amounts: either the value set by specific rules in other parts of the law, or the market value (or original cost) of the property. This helps figure out how much the company can claim for wear and tear on the property.

There are some exceptions to these rules. For example, if the property isn’t something that wears out over time (like a trademark), the tax department might decide to use a different value. Also, if the value of the property counts as income for the company that’s giving it up, different rules apply.

When it comes to working out how quickly the property wears out for tax purposes, the new company can’t claim it’s wearing out faster than the old company did. If the new company uses a different method to calculate wear and tear, they have to make sure it’s not more than what the old company was claiming.

These rules don’t apply to certain types of property that have a fixed lifespan, like patents. Those have their own special rules.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1514641.

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

EE 41Transfer of depreciable property on certain amalgamations on or after 14 May 2002

  1. This section applies when, on or after 14 May 2002, an amalgamated company acquires, directly or indirectly, an item of property from an amalgamating company, and—

  2. the amalgamated company’s acquisition of the item is part of an amalgamation that is not a resident’s restricted amalgamation; and
    1. the amalgamating company is an associated person of the amalgamated company, treating the amalgamating company as existing at the time that the amalgamated company is treated under section FO 11(1)(b) or FO 15(3) (which relate to property passing on certain amalgamations) as having acquired the property from the amalgamating company.

      1. For the purposes of determining the amount of depreciation loss that the amalgamated company has, the cost of the item to it is treated as 1 of the following:

      2. if section EE 58 applies for the amalgamating company and the item, the lesser of—
        1. the value given under section FO 11 or FO 15, as applicable; and
          1. the item’s market value when the amalgamating company 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 for the amalgamating company and the item, the lesser of—
            1. the value given under section FO 11 or FO 16 (Amortising property), as applicable; and
              1. the cost of the item to the amalgamating company.

              2. Subsection (2) 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 the amalgamated company for the purposes of determining the amount of depreciation loss that it has for the item:
                1. the cost to the amalgamated company is income of the amalgamating company, other than under section EE 48(1).

                  1. The annual rate that the amalgamated company applies to the item must be 1 of the following:

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

                      1. Subsection (4) does not apply to an item of fixed life intangible property whose rate is set in section EE 33.

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                      Notes
                      • Section EE 41(2)(b)(i): amended, on , by section 60 of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).