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EZ 22: Base value and total deductions in section EE 56: before 1 April 1995
or “Rules for calculating depreciation on pre-1995 assets”
You could also call this:

“How to calculate depreciation rates for older property and equipment”

This section explains how to set the economic depreciation rate for certain types of property. You need to know this if you have plant or equipment bought before 1 April 2005, or buildings bought before 19 May 2005. It also applies to some buildings bought after 19 May 2005 if they were relationship property or from a related company.

The Commissioner of Inland Revenue sets the rate by following a process and issuing a formal decision. To set the rate, the Commissioner uses a special formula and then rounds it to the nearest rate in a list. The Commissioner can set the same rate for similar items to make things simpler.

The formula used is: 1 minus ((residual value divided by cost) to the power of (1 divided by estimated useful life)).

In this formula:

  • ‘Residual value’ is the higher of the estimated leftover market value or 13.5% of the cost.
  • ‘Cost’ is how much the items cost.
  • ‘Estimated useful life’ is how long the item is expected to be useful, as defined in another part of the law.

This method helps figure out how much the value of these items decreases over time for tax purposes.

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Next up: EZ 23BA: Aircraft acquired before 2017–18 income year: adjusted tax value, base value, reduced; total deductions increased

or “Aircraft purchased before 2017-2018: adjusting value and deductions for engine overhauls”
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Part E Timing and quantifying rules
Terminating provisions

EZ 23Economic rate for plant or equipment acquired before 1 April 2005 and buildings acquired before 19 May 2005

  1. This section is about setting the economic depreciation rate that applies to items of a kind of depreciable property if—

  2. the kind of depreciable property is not fixed life intangible property, or excluded depreciable property, for which an economic rate cannot be set; and
    1. the items are—
      1. plant or equipment acquired before 1 April 2005:
        1. buildings acquired before 19 May 2005:
          1. buildings acquired on or after 19 May 2005, as relationship property or from a company in the same wholly-owned group of companies, from a person who applied to the item an economic depreciation rate set under this section or a corresponding provision.

          2. The Commissioner sets the rate from time to time by—

          3. following the procedure set out in this section; and
            1. issuing a determination under section 91AAF of the Tax Administration Act 1994.

              1. To set the diminishing value rate for a kind of item of depreciable property, the Commissioner—

              2. gets a figure by applying the formula in subsection (4) to items of that kind; and
                1. rounds the figure up or down to the nearest rate specified in schedule 12, column 1 (Old banded rates of depreciation); and
                  1. sets the same rate for some or all of the kinds of items of depreciable property that are similar to one another, if the Commissioner thinks it is appropriate to do so having regard to—
                    1. the rate calculated for each kind; and
                      1. the reduction in compliance costs that is likely to be achieved.

                      2. The formula is—

                        1 − ((residual value ÷ cost) (1 ÷ estimated useful life)).

                        Where:

                        • In the formula,—

                        • residual value is the greater of—
                          1. estimated residual market value, which is defined in section EE 67 (Other definitions):
                            1. 13.5% of cost:
                            2. cost is the cost of items of the kind to which the formula is applied:
                              1. estimated useful life is defined in section EE 63 (Meaning of estimated useful life).

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