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Income Tax Act 2007

Timing and quantifying rules - Depreciation

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

You could also call this:

“Calculating taxable income from selling a partly business-used item”

This section of the law talks about how to calculate depreciation recovery income when you’ve used an item partly for business. It applies to certain types of property that you own and use for business purposes.

If you sell or get rid of this item and the money you get for it is less than or equal to what you paid for it, you need to work out your depreciation recovery income using a special formula.

The formula takes into account how much depreciation you’ve claimed over the years, the original value of the item, and its current tax value. It helps figure out how much of the money you get from selling or disposing of the item should be treated as income.

There’s an exception for motor vehicles if you’ve chosen to use the kilometre rate method for calculating your vehicle expenses. In this case, you don’t have any depreciation recovery income to worry about.

The law provides definitions for the terms used in the formula, like ‘all deductions’, ‘base value’, ‘adjusted tax value’, and ‘amount of depreciation recovery income’. These help you understand exactly what numbers to use when you’re doing the calculation.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1514662.

Topics:
Money and consumer rights > Taxes
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EE 48: Effect of disposal or event, or

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

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EE 50: Amount of depreciation loss when item partly used to produce income, or

“How to calculate depreciation when an item is used partly for business”

Part E Timing and quantifying rules
Depreciation

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

  1. This section applies to an item of property that—

  2. is an item to which this section applies, as described in section EE 46; and
    1. is, at any time during the period the person owns it, dealt with in—
      1. subpart DE (Motor vehicle expenditure); or
        1. any applicable paragraph in section EZ 11 (Amounts of depreciation recovery income and depreciation loss for part business use up to 2004–05 income year); or
          1. section EE 50.

          2. If the consideration referred to in section EE 44 is less than or equal to the cost of the item to the person, the amount of depreciation recovery income that the person has is an amount calculated using the formula in subsection (3).

          3. Despite subsections (1) and (2), there is no depreciation recovery income under this section for a motor vehicle which is dealt with under subpart DE if the person has made an election under section DE 2B(1) (Election to use kilometre rate method or costs method) to use the kilometre rate method described in section DE 12 (Kilometre rate method) for that vehicle.

          4. The formula is—

            (all deductions ÷ (base value − adjusted tax value))× amount of depreciation recovery income.

            Where:

            • The items in the formula are defined in subsections (5) to (8).

            • All deductions is all amounts of depreciation loss for which the person has been allowed a deduction for the item in each of the income years in which the person has owned the item.

            • Base value has the applicable one of the meanings in sections EE 57 to EE 59.

            • Adjusted tax value is the item’s adjusted tax value on the date on which the disposal or the event occurs.

            • Amount of depreciation recovery income is the amount described in section EE 48(1)(a).

            Compare
            Notes
            • Section EE 49(2B) heading: inserted, on (applying for the 2017–18 and later income years), by section 80(1) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
            • Section EE 49(2B): inserted, on (applying for the 2017–18 and later income years), by section 80(1) of the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017 (2017 No 3).
            • Section EE 49(8): amended (with effect on 1 April 2008), on , by section 64(1) (and see section 64(2) and (3)) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).