Plain language law

New Zealand law explained for everyone

 Plain Language Law homepage
Back to
EE 49: Amount of depreciation recovery income when item partly used for business
or “Calculating taxable income from selling a partly business-used item”
You could also call this:

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

You need to know about how much depreciation loss you can claim when you use an item partly for business and partly for other things. This applies to items you own that lose value over time, like machinery or equipment.

If you use the item for both business and personal reasons during the year, you can only claim part of the depreciation loss. You need to work out how many days you used it for business compared to the total number of days you owned it.

There’s a special calculation you need to use. You multiply the total depreciation loss by the number of days you used it for business, then divide by the total number of days you owned it. This gives you the amount you can claim.

Sometimes, you might need to use a different measure instead of days. For example, you might use distance if that’s more accurate for your situation.

There are also special rules for when you sell or get rid of an item. In this case, you need to use a different calculation that takes into account how much you’ve claimed in the past and the item’s current value.

If you start using an item for business part-way through the year, there’s another calculation to work out how much you can claim. This looks at how many days you used it for business compared to the total days you owned it that year.

Remember, these rules don’t apply to motor vehicles. There are different rules for those in another part of the tax law.

This text is automatically generated. It might be out of date or be missing some parts. Find out more about how we do this.

Next up: EE 51: Amount of depreciation recovery income when lost or stolen items recovered

or “How to calculate tax on recovered items previously claimed as lost or stolen”
Next

Part E Timing and quantifying rules
Depreciation

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

  1. Subsection (2) applies when—

  2. a person has an amount of depreciation loss for an item of depreciable property for an income year, other than an amount arising under section EE 48(2); and
    1. at a time during the income year, the item is partly used, or partly available for use, by the person—
      1. in deriving assessable income or carrying on a business for the purpose of deriving assessable income; or
        1. in a way that is subject to fringe benefit tax; and
        2. at the same time, the item is partly used, or is partly available for use, by the person for a use that falls outside both paragraph (b)(i) and (ii); and
          1. the item is not a motor vehicle to which subpart DE (Motor vehicle expenditure) applies.

            1. The deduction the person is allowed for the amount of depreciation loss must not be more than the amount calculated using the formula—

              depreciation loss × qualifying use days ÷ all days.

              Where:

              • In the formula in subsection (2),—

              • depreciation loss is the amount of depreciation loss for the income year:
                1. qualifying use days is the number of days in the income year on which the person owns the item and uses it, or has it available for use, for a use that falls within subsection (1)(b)(i) or (ii):
                  1. all days is the number of days in the income year on which the person owns the item and uses it or has it available for use.

                    1. A unit of measurement other than days, whether relating to time, distance, or anything else, is to be used in the formula if it achieves a more appropriate apportionment.

                    2. Subsection (6) applies when—

                    3. a person has an amount of depreciation loss for an item of depreciable property arising under section EE 48(2); and
                      1. the item was, at any time during the period the person owned it, dealt with in—
                        1. subsection (2); 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); and
                          2. the item is not a motor vehicle to which subpart DE applies.

                            1. The deduction the person is allowed for the amount of depreciation loss is calculated using the formula—

                              disposal depreciation loss × all deductions÷ (base value − adjusted tax value at date).

                              Where:

                              • In the formula in subsection (6),—

                              • disposal depreciation loss is the amount resulting from a calculation made for the item under section EE 48(2):
                                1. all deductions is all amounts of depreciation loss relating to the item for which the person has been allowed a deduction in each of the income years in which the person has owned the item:
                                  1. base value has whichever is applicable of the meanings in sections EE 57 to EE 59:
                                    1. adjusted tax value at date is the item’s adjusted tax value on the date on which the disposal or event occurs.

                                      1. Subsection (9) applies when—

                                      2. a person has an amount of depreciation loss for an item of depreciable property for an income year arising under section EE 48(2); and
                                        1. in the income year in which the amount of depreciation loss arises, the person starts to use the item, or have it available for use, for the purpose of deriving assessable income or carrying on a business for the purpose of deriving assessable income; and
                                          1. at a time during the income year, the item is partly used, or partly available for use, by the person—
                                            1. in deriving assessable income or carrying on a business for the purpose of deriving assessable income; or
                                              1. in a way that is subject to fringe benefit tax; and
                                              2. the item is not a motor vehicle to which subpart DE (Motor vehicle expenditure) applies.

                                                1. The deduction the person is allowed for the amount of depreciation loss is calculated using the formula—

                                                  disposal depreciation loss × qualifying use days ÷ all days.

                                                  Where:

                                                  • In the formula in subsection (9),—

                                                  • disposal depreciation loss is the amount resulting from a calculation made for the item under section EE 48(2):
                                                    1. qualifying use days is the number of days in the income year on which the person owns the item and uses it, or has it available for use, for a use that falls within subsection (8)(c)(i) or (ii):
                                                      1. all days is the number of days in the income year on which the person owns the item and uses it or has it available for use for any purpose.

                                                        1. A unit of measurement other than days, whether relating to time, distance, or anything else, is to be used in the formula if it achieves a more appropriate apportionment.

                                                        Compare