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Income Tax Act 2007

Timing and quantifying rules - Terminating provisions - Definitions

EZ 26: Meaning of qualifying capital value

You could also call this:

“How to work out the value of certain business assets for tax purposes”

In this part of the law, you learn about something called “qualifying capital value”. This is important when you own certain things for your business.

If you own a qualifying asset, the qualifying capital value is worked out using a special calculation. You take how much it cost you to buy the asset, add how much you spent improving it, and then take away the amount it has lost in value over time (but not including any loss calculated in a straight line).

For things you own that aren’t qualifying assets, but you’ve made qualifying improvements to them, there’s a different calculation. You take how much you spent on the improvement and subtract how much that improvement has lost in value over time.

When figuring out how much you spent to buy an asset, if you built it yourself, you don’t count any money you spent building it on or after 1 April 1993. But if you had a contract to build it that you signed before 1 April 1993, you can still count that money.

The law also explains that when it talks about how much value the asset or improvement has lost, it doesn’t include any loss worked out using the straight-line method.

This information helps you understand how to calculate the qualifying capital value, which you might need to know for tax purposes.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1516075.

Topics:
Money and consumer rights > Taxes
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EZ 25: Meaning of New Zealand-new asset, or

“What counts as a 'New Zealand-new asset' for tax purposes”

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EZ 27: Meaning of qualifying improvement, or

“What qualifies as an improvement to an item for tax purposes”

Part E Timing and quantifying rules
Terminating provisions: Definitions

EZ 26Meaning of qualifying capital value

  1. Qualifying capital value means, for an income year,—

  2. for a qualifying asset that a person owns, the amount calculated for the income year using the formula in subsection (2); or
    1. for an item that a person owns that is not a qualifying asset but to which they have made a qualifying improvement, the amount calculated for the income year using the formula in subsection (7).

      1. The formula referred to in subsection (1)(a) is—

        (acquisition cost + improvement cost) − item's depreciation.

        Where:

        • The items in the formula in subsection (2) are defined in subsections (4) to (6).

        • Acquisition cost is the amount of capital expenditure the person incurs in acquiring the asset or item. In the case of a constructed item, the amount of capital expenditure is reduced by the amount of capital expenditure the person incurs on the construction on or after 1 April 1993, other than under a binding contract that the person entered into before 1 April 1993.

        • Improvement cost is the amount of capital expenditure, if any, the person incurs in making a qualifying improvement to the asset or item.

        • Item’s depreciation is the amount of depreciation loss for which the person has been allowed a deduction for the qualifying capital value of the asset or item in earlier income years, not including an amount of depreciation loss calculated using the straight-line method.

        • The formula referred to in subsection (1)(b) is—

          capital expenditure − improvement’s depreciation.

          Where:

          • The items in the formula in subsection (7) are defined in subsections (9) and (10).

          • Capital expenditure is the amount of capital expenditure the person incurs for the improvement.

          • Improvement’s depreciation is the amount of depreciation loss for which the person has been allowed a deduction for the qualifying capital value of the improvement in earlier income years, not including an amount of depreciation loss calculated using the straight-line method.

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