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Income Tax Act 2007

Deductions - Expenditure specific to certain industries

DW 5: Aircraft operators: aircraft engines and aircraft engine overhauls

You could also call this:

"Tax rules for aircraft owners: claiming engine costs"

Illustration for Income Tax Act 2007

You operate an aircraft with an engine. You must maintain and repair the engine. You can claim a deduction for the cost of overhauling the engine. The amount you can claim depends on the cost of the overhaul and the engine's condition. You buy an aircraft engine to use with your aircraft. You can claim a deduction for the cost of the engine. The amount you can claim depends on how you bought the engine and its condition. If you have made a special choice under section EJ 26, you cannot claim a deduction for the engine overhaul. The engine is treated as an unpriced engine. When you overhaul the engine, you replace some parts. The cost of these parts is worked out differently depending on their condition. This rule overrides some other rules about what you can claim as a deduction. Other rules still apply to your claim.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM7276307.

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Part DDeductions
Expenditure specific to certain industries

DW 5Aircraft operators: aircraft engines and aircraft engine overhauls

  1. This section applies for a person when—

  2. the person carries on a business involving the operation of an aircraft that includes an aircraft engine; and
    1. the person is required to maintain and repair the aircraft engine and pieces of the aircraft engine, when operating the aircraft, and to perform successive aircraft engine overhauls of the aircraft engine at intervals no greater than the scheduled overhaul period for the aircraft engine.

      1. For expenditure incurred by the person in carrying out an aircraft engine overhaul of an aircraft engine—

      2. the person has a deduction to the extent to which the process does not produce a significant increase in the performance of the aircraft engine by comparison with the aircraft engine’s performance specifications before the aircraft engine overhaul:
        1. an amount for which the person does not have a deduction under paragraph (a)—
          1. is an increase in the cost of the aircraft to the person, if the aircraft engine is an unpriced aircraft engine; or
            1. is an increase in the cost of the aircraft engine to the person, otherwise.

            2. A person who acquires an aircraft engine for use with an aircraft, other than as an unpriced aircraft engine with the aircraft, has a deduction of an amount given by subsection (4)—

            3. for expenditure incurred in acquiring the aircraft engine, if the aircraft engine is acquired other than under a finance lease; or
              1. for part of the value of the aircraft engine determined under section EW 32 (Consideration for agreement for sale and purchase (ASAP) of property or services, hire purchase agreement, specified option, or finance lease), if the aircraft engine is acquired under a finance lease.

                1. The amount of the person’s deduction under subsection (3) is—

                2. equal to the estimated cost of an aircraft engine overhaul for the aircraft engine at the time of the acquisition, if—
                  1. when the aircraft engine is acquired, the aircraft engine has not been used significantly since being manufactured or having an aircraft engine overhaul; and
                    1. the estimated cost is less than the amount referred to in paragraph (c); or
                    2. equal to a fraction, calculated from the proportion of the scheduled overhaul period for the aircraft engine that is unexpired when the aircraft engine is acquired, of the estimated cost of an aircraft engine overhaul for the aircraft engine at the time of the acquisition, if the fraction of the estimated cost is less than the amount referred to in paragraph (c); or
                      1. equal to the expenditure incurred in acquiring the aircraft engine, if the amount is not given by paragraph (a) or (b).

                        1. A person who acquires an aircraft including an unpriced aircraft engine has a deduction of an amount given by subsection (6)—

                        2. for part of the expenditure incurred in acquiring the aircraft, if the aircraft is acquired other than under a finance lease; or
                          1. for part of the value of the aircraft determined under section EW 32, if the aircraft is acquired under a finance lease.

                            1. The amount of the person’s deduction under subsection (5) is—

                            2. equal to the estimated cost of an aircraft engine overhaul for the aircraft engine at the time of the acquisition, based on market prices, if the aircraft engine, when acquired, has not been used significantly since being manufactured or having an aircraft engine overhaul; or
                              1. equal to a fraction, calculated from the proportion of the scheduled overhaul period for the aircraft engine that is unexpired when the aircraft is acquired, of the estimated cost of an aircraft engine overhaul for the aircraft engine at the time of the acquisition based on market prices; or
                                1. equal to a fraction, agreed with the Commissioner, of the expenditure incurred in acquiring the aircraft including the unpriced aircraft engine.

                                  1. If a person has made an election under section EJ 26 (Allocation of expenditure on aircraft engine overhauls: election by operator of single aircraft),—

                                  2. the person is not allowed a deduction referred to in subsection (3) or (5); and
                                    1. each aircraft engine of the person is an unpriced aircraft engine for the purposes of this section.

                                      1. The amount of expenditure incurred by a person, in carrying out an aircraft engine overhaul, for a piece that is fitted as a replacement piece to the aircraft as part of the aircraft engine overhaul is—

                                      2. the adjusted tax value of the piece for the person before the piece is fitted, if the piece is an item of depreciable property before being fitted:
                                        1. the portion of the person’s expenditure on the piece that is unexpired before the piece is fitted, otherwise.

                                          1. This section overrides the capital limitation. The other general limitations still apply.

                                          Notes
                                          • Section DW 5: inserted, on (applying for the 2017–18 and later income years), by section 52(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).