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Income Tax Act 2007

Timing and quantifying rules - Depreciation

EE 48: Effect of disposal or event

You could also call this:

"What happens with tax when you sell or get rid of something"

When you sell or get rid of something, like a building or equipment, you need to work out if you made a profit or a loss. If you sold it for more than it was worth, you might have to pay tax on the profit. The profit is the difference between what you sold it for and what it was worth.

If you sold it for less than it was worth, you might have a loss. The loss is the difference between what you sold it for and what it was worth. You can use this loss to reduce the tax you pay.

There are special rules for buildings that have been damaged or destroyed. If a building is damaged or destroyed because of a natural event, like an earthquake, and it can't be used to earn income anymore, you might be able to claim a loss. You can't claim a loss if the damage was caused by something you did or didn't do.

You derive the income or loss in the year you can reasonably estimate the amount. This means you need to work out how much you made or lost as soon as you can, and pay tax on it or claim it as a loss in that year.

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This page was last updated on

View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1514660.

Topics:
Money and consumer rights > Taxes
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EE 47: Events for purposes of section EE 44, or

"Changes affecting tax claims for property wear and tear"

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EE 49: Amount of depreciation recovery income when item partly used for business, or

"Calculating taxable income from selling a partly business-used item"

Part ETiming and quantifying rules
Depreciation

EE 48Effect of disposal or event

  1. For the purposes of section EE 44, if the consideration is more than the item’s adjusted tax value on the date on which the disposal or the event occurs, the lesser of the following amounts is the amount of depreciation recovery income derived by the person:

  2. the amount by which the consideration is more than the item’s adjusted tax value on the date on which the disposal or the event occurs; and
    1. the amount given by subsections (1B) and (1C).

      1. The amount for the purposes of subsection (1)(b) is given by the following formula:

        item depreciation loss + CZ 11 item amount + DB 64 item amount + new investment asset amount.

        Where:

        • In the formula in subsection (1B),—

        • item depreciation loss is the total of the amounts of—
          1. depreciation loss for which the person has been allowed deductions for the item; and
            1. if the item is a building, the total amount of deductions allowed under sections DB 65, as in force before its repeal by section 4 of the COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020, and DB 65B (which deal with allowances for commercial buildings):
            2. CZ 11 item amount is the amount of any deduction allowed for the acquisition of the item, for the person, if the item is one to which section CZ 11 (Recovery of deductions for software acquired before 1 April 1993) applies:
              1. DB 64 item amount is the amount of the capital contribution for the item, for the person, if the item is one to which section DB 64 (Capital contributions) applies:
                1. new investment asset amount is the amount of the reduction for the item under section DI 6 (Relationship to cost, calculations, etc, in other provisions) for the person, if the item is a new investment asset.

                  1. For the purposes of section EE 44, if the consideration is less than the item’s adjusted tax value on the date on which the disposal or the event occurs, the person has an amount of depreciation loss that is the amount by which the consideration is less than the item’s adjusted tax value on that date.

                  2. The person derives the depreciation recovery income in the income year that is the earliest income year in which the consideration can be reasonably estimated.

                  3. Subsection (2) does not apply if the item is a building unless—

                  4. the building has been rendered useless for the purpose of deriving income, and demolished or abandoned for later demolition as a result of damage to the building or of the neighbourhood of the building; and
                      1. the damage is caused—
                        1. by a natural event not under the control of the person, an agent of the person, or an associated person; and
                          1. other than as a result of the action or failure to act of the person, an agent of the person, or an associated person.

                          Compare
                          Notes
                          • Section EE 48(1): amended (with effect on 4 September 2010), on , by section 27(1) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
                          • Section EE 48(1)(b): substituted (with effect on 20 May 2010), on , by section 80(1) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
                          • Section EE 48(1B) heading: inserted (with effect on 20 May 2010), on , by section 80(2) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
                          • Section EE 48(1B): inserted (with effect on 20 May 2010), on , by section 80(2) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
                          • Section EE 48(1B) formula: amended (with effect on 22 May 2025), on , by section 6(1) of the Taxation (Budget Measures) Act 2025 (2025 No 26).
                          • Section EE 48(1C) heading: inserted (with effect on 20 May 2010), on , by section 80(2) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
                          • Section EE 48(1C): inserted (with effect on 20 May 2010), on , by section 80(2) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
                          • Section EE 48(1C)(a): replaced, on , by section 58(1) (and see section 58(2) for application) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).
                          • Section EE 48(1C)(d): inserted (with effect on 22 May 2025), on , by section 6(2) of the Taxation (Budget Measures) Act 2025 (2025 No 26).
                          • Section EE 48(2): amended (with effect on 4 September 2010), on , by section 27(2) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
                          • Section EE 48(2B) heading: inserted (with effect on 4 September 2010), on , by section 27(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
                          • Section EE 48(2B): inserted (with effect on 4 September 2010), on , by section 27(3) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
                          • Section EE 48(3) heading: substituted (with effect on 4 September 2010), on , by section 27(4) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
                          • Section EE 48(3)(a): substituted (with effect on 4 September 2010), on , by section 27(5) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
                          • Section EE 48(3)(a): amended (with effect on 1 April 2020), on , by section 82(1) (and see section 82(2) for application) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
                          • Section EE 48(3)(b): repealed (with effect on 4 September 2010), on , by section 27(6) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
                          • Section EE 48(3)(c): substituted (with effect on 4 September 2010), on , by section 27(7) of the Taxation (Tax Administration and Remedial Matters) Act 2011 (2011 No 63).
                          • Section EE 48 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).
                          • Section EE 48 list of defined terms capital contribution: inserted (with effect on 20 May 2010), on , by section 80(3) of the Taxation (Budget Measures) Act 2010 (2010 No 27).
                          • Section EE 48 list of defined terms new investment asset: inserted (with effect on 22 May 2025), on , by section 6(3) of the Taxation (Budget Measures) Act 2025 (2025 No 26).