Plain language law

New Zealand law explained for everyone

Income Tax Act 2007

Timing and quantifying rules - Depreciation

EE 48: Effect of disposal or event

You could also call this:

“What happens when you sell or dispose of a business asset”

When you sell or get rid of something you own in your business, you might need to pay tax on it. This is called depreciation recovery income. Here’s how it works:

If you sell the item for more than its adjusted tax value, you’ll have to pay tax on the smaller of these two amounts:

  1. The difference between what you sold it for and its adjusted tax value
  2. A special amount calculated using a formula

This formula adds up three things:

  • The total depreciation you’ve claimed on the item
  • Any special deductions for software bought before 1 April 1993
  • Any capital contributions related to the item

If you sell the item for less than its adjusted tax value, you’ll have a depreciation loss. This loss is the difference between what you sold it for and its adjusted tax value.

You have to report this income in the earliest tax year when you can reasonably guess how much you’ll get for the item.

There’s a special rule for buildings. If your building is destroyed or you have to demolish it because of damage that wasn’t your fault (like a natural disaster), you might not have to pay tax on it.

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 It might be out of date or be missing some parts.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=DLM1514660.

Topics:
Money and consumer rights > Taxes
Business > Industry rules
Previous

EE 47: Events for purposes of section EE 44, or

“Changes affecting tax claims for property wear and tear”

Next

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 E Timing 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.

        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. 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(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(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).