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Income Tax Act 2007

Recharacterisation of certain transactions - Tax relief for emergencies - Replacements: depreciable property

FP 11: Effect of replacing affected depreciable property on subpart EE

You could also call this:

“What happens to tax when you replace something that can be depreciated, like a machine”

When you replace something that can be depreciated, like a machine, this rule applies for the purposes of subpart EE (Depreciation). You might get a new item to replace the old one, or you might get rid of the new item. If you get a new item and do not use the pool method for it, the replacement reduction in section FP 10(2) is not included in the cost of the new item. This affects how you work out the value or cost of the new item under section EE 16(4) or section EE 22, depending on the method you use. If you use the pool method for the new item, its cost is reduced by the replacement reduction in section FP 10(4). This reduction affects the adjusted tax value of the new item, or the cost of the item for the straight-line method, or the adjusted tax value of the pool, depending on the method you use. When you get rid of the new item, the reduction in its cost is treated as depreciation loss for which you have been allowed a deduction, for the purposes of section EE 48.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=LMS1432189.

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FP 10: Replacement reduction for affected depreciable property, or

"Reducing tax when you replace something that's worn out"

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FP 12: Replacement property for improvements to land affected by emergency events, or

"Delaying tax on money for fixing damage to your land after an emergency"

Part F Recharacterisation of certain transactions
Tax relief for emergencies: Replacements: depreciable property

FP 11Effect of replacing affected depreciable property on subpart EE

  1. This section applies for the purposes of subpart EE (Depreciation) when a person—

  2. acquires an item of replacement property (replacement item) to replace affected depreciable property:
    1. disposes of the replacement item.

      1. If the person acquires the replacement item and links it with an affected class for which the person does not use the pool method, the amount of the replacement reduction in section FP 10(2) is treated as not being included in the replacement cost of the replacement item for the purposes of determining,—

      2. under section EE 16(4) (Amount resulting from standard calculation), the item value or cost for the replacement item, if the person uses the diminishing value method or straight-line method for that item; or
        1. under section EE 22 (Cases affecting pool), the cost of the replacement item, if the person uses the pool method for the replacement item.

          1. If the person acquires a replacement item and links the item with an affected class for which the person uses the pool method, the replacement cost of the replacement item is treated as being reduced by the replacement reduction in section FP 10(4) for the purposes of determining—

          2. the adjusted tax value of the replacement item, if paragraph (b) or (c) does not apply; or
            1. the cost of the replacement item for the straight-line method, if that method is used to determine depreciation loss for the replacement item; or
              1. the adjusted tax value of the pool of the replacement item, if the person uses the pool method for the replacement item.

                1. For the purposes of section EE 48 (Effect of disposal or event), when a person disposes of a replacement item, the amount by which the replacement cost on the replacement item is treated as being reduced under subsection (2) or (3) is an amount of depreciation loss for the replacement item for which the person has been allowed a deduction.

                Notes
                • Section FP 11: inserted, on , by section 65 of the Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 (2025 No 9).