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Income Tax Act 2007

Timing and quantifying rules - Depreciation

EE 52: Amount of depreciation recovery income when compensation received

You could also call this:

“How to calculate recovery income when you get insurance or compensation for an item”

When you get insurance money, compensation, or an indemnity for something you own, you need to follow some special rules. This doesn’t apply if the item is lost, stolen, or can’t be fixed.

You have to subtract some money from the item’s adjusted tax value. The amount you subtract is the difference between what you got from the insurance or compensation and what you had to spend because of what happened to the item.

If subtracting this amount makes the adjusted tax value less than zero in a year, that negative amount becomes income for you in that year. It’s called depreciation recovery income.

If you were going to get the insurance or compensation money after you stopped owning the item, the rules say you got the money just before you stopped owning it.

These rules are explained in more detail in section EE 46.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1514690.

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

EE 52Amount of depreciation recovery income when compensation received

  1. This section applies when a person receives insurance, indemnity, or compensation for an item of property to which this section applies, as described in section EE 46, other than for an item that is lost, stolen, or irreparably damaged.

  2. An amount must be subtracted from the item’s adjusted tax value. The amount is the amount by which the insurance, indemnity, or compensation that the person receives is more than the expenditure that the person incurs because of the event for which the person receives the insurance, indemnity, or compensation.

  3. If the item’s adjusted tax value becomes negative in an income year through the application of subsection (2), the negative amount is an amount of depreciation recovery income derived by the person in the income year.

  4. If, in the absence of this subsection, the person would derive the amount of insurance, indemnity, or compensation after ceasing to own the item, the person is treated as deriving the amount immediately before the person ceases to own the item.

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Notes
  • Section EE 52(4) heading: inserted (with effect on 25 June 2013), on , by section 49 of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
  • Section EE 52(4): inserted (with effect on 25 June 2013), on , by section 49 of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).