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 businesses: claiming engine costs"

When you run a business with an aircraft, you need to maintain and repair the engine. You have to do this to keep the aircraft working properly. You also have to overhaul the engine at certain times.

If you spend money on an engine overhaul, you can claim some of it back as a deduction. This is only for the amount that keeps the engine working as it should, not for making it better. If the overhaul makes the engine better, you cannot claim that part back.

When you buy an aircraft engine, you can claim some of the cost back as a deduction. This is based on how much it would cost to overhaul the engine at the time you buy it. You can find out more about how to calculate this in section EW 32.

If you buy an aircraft with an engine that has not been priced separately, you can claim some of the cost back. This is based on the cost of overhauling the engine, or a part of the cost of the aircraft. You can also agree on a amount with the Commissioner.

There are some rules that apply to how you claim these deductions. If you have made an election under section EJ 26, you cannot claim some of these deductions. You should check the rules to see how they apply to you.

When you overhaul an engine, you can claim the cost of replacing parts. This is based on the value of the part before it is fitted, or the amount you spent on it. This section has some special rules that override other rules. You should check the other rules to see how they apply to you.

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This page was last updated on 5 August 2025

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

Topics:

Money and consumer rights > TaxesBusiness > Industry rules

DW 4: Deduction for general insurance outstanding claims reserve, or

"Insurers can claim deductions for outstanding general insurance claims"

DW 6: Aircraft operators: payments and adjustments under finance leases, or

"Tax rules for aircraft owners who lease planes and pay for engine repairs"

Part DDeductions
Expenditure specific to certain industries

DW 5Aircraft operators: aircraft engines and aircraft engine overhauls

This section applies for a person when—
the person carries on a business involving the operation of an aircraft that includes an aircraft engine; and
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.

For expenditure incurred by the person in carrying out an aircraft engine overhaul of an aircraft engine—
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:
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
2. is an increase in the cost of the aircraft engine to the person, otherwise.

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)—
for expenditure incurred in acquiring the aircraft engine, if the aircraft engine is acquired other than under a finance lease; or
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.

The amount of the person’s deduction under subsection (3) is—
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
2. the estimated cost is less than the amount referred to in paragraph (c); or
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
equal to the expenditure incurred in acquiring the aircraft engine, if the amount is not given by paragraph (a) or (b).

A person who acquires an aircraft including an unpriced aircraft engine has a deduction of an amount given by subsection (6)—
for part of the expenditure incurred in acquiring the aircraft, if the aircraft is acquired other than under a finance lease; or
for part of the value of the aircraft determined under section EW 32, if the aircraft is acquired under a finance lease.

The amount of the person’s deduction under subsection (5) is—
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
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
equal to a fraction, agreed with the Commissioner, of the expenditure incurred in acquiring the aircraft including the unpriced aircraft engine.

If a person has made an election under section EJ 26 (Allocation of expenditure on aircraft engine overhauls: election by operator of single aircraft),—
the person is not allowed a deduction referred to in subsection (3) or (5); and
each aircraft engine of the person is an unpriced aircraft engine for the purposes of this section.

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—
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:
the portion of the person’s expenditure on the piece that is unexpired before the piece is fitted, otherwise.

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

Notes

Section DW 5: inserted, on 1 April 2017 (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).