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Income Tax Act 2007

Deductions - Specific rules for expenditure types

DB 66: Feasibility expenditure: spread deduction

You could also call this:

“Spreading costs over time for abandoned business projects”

You can get a deduction for money you spend on trying to complete, create, or buy certain types of property, even if you end up not finishing the project. This applies to spending after the 2019-20 income year.

The property you were working on must have been either depreciable property (things that lose value over time) or property you intended to sell. You must have given up on the project, and you can’t have claimed this money as a deduction anywhere else.

This rule doesn’t apply to land (unless it’s a special type called fixed life intangible property), certain financial arrangements, or intangible property like patents (again, unless it’s fixed life intangible property).

If you qualify, you can spread the deduction over five years. You start claiming it in the year you abandon the project. You claim an equal amount each year. But if you end up completing, creating, or buying the property (or something similar) during those five years, you can’t claim any more deductions after that point.

This deduction is allowed even if the spending was on capital items (things that usually can’t be deducted). However, you still need to meet the other rules for claiming deductions.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=LMS478731.

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Money and consumer rights > Taxes
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Part D Deductions
Specific rules for expenditure types

DB 66Feasibility expenditure: spread deduction

  1. This section applies for expenditure to the extent to which a person has—

  2. incurred expenditure for an income year after the 2019–20 income year in relation to making progress towards completing, creating, or acquiring property that, if it were to be completed, created, or acquired, would be—
    1. depreciable property for which the depreciation rate is more than 0%:
      1. revenue account property; and
      2. abandoned further progress in relation to the property, with the result that it is not completed, created, or acquired; and
        1. no deduction in relation to the expenditure under any other provision.

          1. Despite subsection (1) this section does not apply to the extent to which expenditure is in relation to property on the following list:

          2. land, unless it is fixed life intangible property:
            1. an excepted financial arrangement:
              1. intangible property or intellectual property, unless it is fixed life intangible property.

                1. The person is allowed a deduction for the expenditure described in subsection (1), in equal proportions over a period of 5 income years starting in the income year in which they abandon further progress. However, a person is not allowed any remaining deduction portions for the income year in which they complete or create the relevant property, or acquire the relevant property or similar property, or for later years.

                2. This section overrides the capital limitation. The general permission must still be satisfied and the other general limitations still apply.

                Notes
                • Section DB 66: inserted (with effect on 1 April 2020), on , by section 32(1) (and see section 32(2) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).