Depreciation Allowances
Depreciation allows for the wear and tear on a fixed asset and must be deducted from your income.
Generally you must claim depreciation on fixed assets used in your business that have a lifespan of more than 12 months. However in special circumstances you can elect not to depreciate an asset by applying to the IRD.
Not all fixed assets can be depreciated. Land is a common example of a fixed asset that cannot be depreciated.
You will have to keep a fixed asset register to show assets you will be depreciating. This should show the depreciation claimed and adjusted tax value of each asset. The adjusted tax value is the asset's cost price, less all depreciation calculated since purchase.
Effective for 2012 financial year depreciation on buildings with an estimated useful life of over 50 years will cease.
Examples of Buildings with an estimated useful life of less than 50 years and can still be depreciated
- Chicken shed
- Cow shed
- Wintering barns
- Barns
- Temporary buildings
Commercial Buildings
The fit-out of commercial buildings is still depreciable
A one-off adjustment is available in 2012 financial year to compensate for removal of building depreciation if not previoulsy separated in the asset schedule. 15% of buildings tax book value can be depreciated on 2% straight-line basis.
At time of sale, no deduction for losses or depreciation recovered is returned.
It is therefore advisable to separate fit-out at time of purchase.
To view the depreciation rates and the methods for calculating depreciation, please refer to the IRD Depreciation Guide.
To find out more on how to calculate depreciation on a business asset please give us a call or refer to the IRD Depreciation Rate Finder on the IRD Website.
