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Income Tax Act 2007

Timing and quantifying rules - Spreading of specific expenditure - Definitions

EJ 27: Disposal of aircraft engine or aircraft

You could also call this:

“Rules for selling an aircraft engine or aircraft you've claimed expenses for”

When you get rid of an aircraft engine or aircraft that you’ve been allowed to deduct expenses for, there are some special rules you need to follow.

You need to put all the leftover deduction from the last time you bought or overhauled the engine into the year when you sell it.

When you sell the engine or aircraft, you need to split the money you get between two parts: the engine or aircraft itself, and the time left until the next scheduled overhaul. You can agree on this split with the buyer, or make a fair guess if you can’t agree.

The amount of income you make from the sale depends on how much you’ve already deducted. It’s either all the deductions you’ve had so far, or the amount of money for the time left until the next overhaul, whichever is less.

If you’re buying or selling an aircraft engine or aircraft after a lease ends, the price doesn’t include the money for the time left until the next overhaul.

These rules help make sure that when you sell an aircraft engine or aircraft, you’re accounting for all the deductions you’ve had and the value of the time left until the next overhaul.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM7281508.

Topics:
Money and consumer rights > Taxes
Business > Industry rules
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“How to allocate costs for aircraft engine overhauls if you operate only one aircraft”

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Part E Timing and quantifying rules
Spreading of specific expenditure: Definitions

EJ 27Disposal of aircraft engine or aircraft

  1. This section applies when a person—

  2. is allowed a deduction under section DW 5 or DZ 22 (which relate to deductions for expenditure on aircraft engine maintenance) in relation to an aircraft engine or an aircraft including an unpriced aircraft engine; and
    1. disposes of the aircraft engine or aircraft.

      1. The person must allocate to the income year in which the disposal occurs the part of the deduction under section DW 5 or DZ 22 for the preceding acquisition or aircraft engine overhaul that is not allocated to an earlier income year.

      2. The person must allocate the consideration derived for the disposal between—

      3. the aircraft engine or aircraft as an item of depreciable property; and
        1. the unexpired portion of the scheduled overhaul period for the aircraft engine.

          1. The allocation by the person under subsection (3) must be—

          2. the apportionment agreed with the purchaser; or
            1. a fair and reasonable apportionment, if there is no agreed apportionment under paragraph (a).

              1. The person derives from the disposal an amount of income equal to—

              2. the total amount of deductions under section DW 5 or DZ 22 allowed for the aircraft engine or aircraft and the latest scheduled overhaul period beginning before the disposal, if that amount is less than the amount described in paragraph (b); or
                1. the amount of consideration allocated under subsection (3) to the unexpired portion of the scheduled overhaul period for the aircraft engine, if paragraph (a) does not apply.

                  1. For the purposes of sections CC 11 and FA 9 (which relate to a lessee acquiring a lease asset when a lease ends), the amount of consideration paid by a lessee or an associated person of a lessee to acquire an aircraft engine or aircraft, after the term of a finance lease of the aircraft engine or aircraft, does not include the amount allocated under subsection (3) to the unexpired portion of the scheduled overhaul period for the aircraft engine or aircraft.

                  2. For the purposes of sections CC 12 and FA 10 (which relate to a lessor acquiring a lease asset when a lease ends), the amount of consideration received by the lessor for a disposal of an aircraft engine or aircraft after the term of a finance lease of the aircraft engine or aircraft does not include an amount of consideration allocated under subsection (3) to the unexpired portion of the scheduled overhaul period for the aircraft engine or aircraft.

                  Notes
                  • Section EJ 27: inserted, on (applying for the 2017–18 and later income years), by section 69(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).