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Income Tax Act 2007

Deductions - Specific rules for expenditure types

DB 65B: Allowance for embedded fit-out of certain commercial buildings

You could also call this:

“Special deduction for fit-out in older commercial buildings”

You can get a special allowance if you own a commercial building that you bought in the 2010-11 tax year or earlier. This allowance is for the fit-out (the things inside the building) that came with the building when you bought it.

To qualify, your building must be depreciable property with a 0% annual rate in an income year. Also, you must not have claimed any deductions for the fit-out before, except under this section or section DB 65.

If you qualify, you’re treated as having a loss for the income year. The amount of loss is calculated using a formula that takes into account the value of your building and its fit-out, and how long you’ve used the building during the year.

There’s a limit to how much loss you can claim. If the calculated amount is more than a certain limit, your loss will be set at that limit instead.

The formulas used to work out your loss and its limit use several factors. These include the value of your building and its fit-out in the 2010-11 income year, any previous deductions you’ve claimed for the fit-out, and how many months you’ve used the building in the current year.

Even though the building and fit-out are capital items, you can still claim this loss. The capital limitation doesn’t apply in this case.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=LMS959607.

Topics:

Money and consumer rights > Taxes

DB 65: Allowance for certain commercial buildings, or

“Allowance for commercial buildings removed from tax law”

DB 66: Feasibility expenditure: spread deduction, or

“Spreading costs over time for abandoned business projects”

Part D Deductions
Specific rules for expenditure types

DB 65BAllowance for embedded fit-out of certain commercial buildings

This section applies when—
a person owns a commercial building and the building is depreciable property with an annual rate of 0% in an income year; and
the building was acquired in the 2010–11 or an earlier income year; and
the person has never had a deduction for commercial fit-out that was acquired at the same time as the building and relates to the building other than under—
1. this section:
2. section DB 65, as in force before its repeal by section 4 of the COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020.

Except as provided in subsection (4), the person is treated as having a loss for the income year equal to the amount calculated using the formula—
$starting pool × 0.015 × whole months ÷ 12.$

Where:
Starting pool is the amount given by the formula—
$(0.15 × building atv) − fit-out atv.$

Where:
Despite subsection (2), if the amount given by the formula in subsection (2) is more than the amount given by the formula in subsection (5), then the person is treated as having a loss for the income year equal to the amount given by the formula in subsection (5).
For the purposes of subsection (4), the formula is—
$starting pool − historical fit-out deductions − fit-out deductions − imputed deductions.$

Where:
The amount of the imputed deductions is—
$starting pool × 0.015 × 4.$

Where:
In the formulas in subsections (2), (3), (5), and (6), as applicable, —
starting pool is the amount given by the formula in subsection (3):
whole months is the number of whole months in the income year in which the building is used, or is available for use, by the person in deriving assessable income or carrying on a business for the purpose of deriving assessable income:
building atv is the adjusted tax value of the building that results for the 2010–11 income year after all relevant amounts for that income year have been subtracted under subpart EE (Depreciation):
fit-out atv is the total adjusted tax value of all items of commercial fit-out that results for the 2010–11 income year after all relevant amounts for that income year have been subtracted under subpart EE if—
1. the items of commercial fit-out relate to the building and were acquired after the building was acquired; and
2. the person has had a deduction for an amount of depreciation loss for the items of commercial fit-out:
historical fit-out deductions is the total amount of a person’s deductions allowed under section DB 65, as in force before its repeal by section 4 of the COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020, for income years before the 2020–21 income year:
fit-out deductions is the total amount of deductions the person has claimed under this section for all income years:
imputed deductions is the amount given by the formula in subsection (6), being the total amount of deductions the person would have received for the 2020–21 to 2023–24 income years if this section applied from the beginning of the 2020–21 income year to the end of the 2023–24 income year.

The capital limitation does not apply to a loss under this section merely because the item of property is itself of a capital nature.

Notes

Section DB 65B: inserted, on 1 April 2024, by section 40(1) (and see section 40(2) for application) of the Taxation (Annual Rates for 2023–24, Multinational Tax, and Remedial Matters) Act 2024 (2024 No 11).