NZ Taxation Advisory Blog

Understanding how prepayments are treated under New Zealand tax legislation is crucial for ensuring compliance and maximizing allowable deductions.  Key Legislative References Income Tax Act 2007 Part C - Income, Subpart CH - Adjustments Covers matching rules for revenue account property, prepayments, and deferred payments. Part E - Timing and Quantifying Rules, Subpart EA Specifies rules for matching revenue account property, prepayments, and deferred payments. Section CH 2 - Adjustment for Prepayments References Section EA 3 (Prepayments), which outlines the treatment of unexpired portions of prepayments. Section EA 3 - Prepayments States that the unexpired portion of a prepayment is treated as income in the current year, with a deduction allowed in the subsequent year. Tax Administration Act 1994 Section 91AAC - Exemptions from Section EA 3 of ITA 2007 Grants the Commissioner the authority to determine whether a prepayment can be treated as deductible in the current income year,...

The Inland Revenue Department (IRD) provides formal guidelines through "determinations" to set depreciation rates and asset classifications, ensuring taxpayers comply with tax legislation. What is a Determination? The IRD uses determinations to provide clarity and set standards for various tax issues, including: Accrual expenditure. Depreciation (e.g., DEP80). Financial arrangements. Foreign currency. Livestock valuations. Standard costs for service providers (e.g., boarding or childcare). These determinations ensure consistent tax treatment and simplify compliance for businesses and individuals. Determination DEP80 (2011) DEP80 introduces a comprehensive list of asset classes specific to the Residential Rental Property Chattels industry. These assets, such as carpets, dishwashers, and furniture, meet the three-point test, qualifying them as separate depreciable properties. The determination provides: Estimated Useful Life : The expected duration of use for each asset. Deprec...

Determining whether an item in a residential rental property is a separate depreciable property or part of the building is essential for tax compliance and claiming depreciation. Interpretation Statement IS 10/01 provides the Commissioner’s view and outlines a clear three-step test to classify such items. The Three-Step Test Step 1: Is the Item Attached or Connected to the Building? If the item is completely unattached, it is not part of the building. Plugged or wired items are considered unattached. If the item is attached, proceed to Step 2. Step 2: Is the Item an Integral Part of the Building? Would the rental property be incomplete or unable to function without the item? Integral items are considered part of the building. If not integral, proceed to Step 3. Step 3: Is the Item Part of the Building’s Fabric? Consider the nature and degree of attachment, as well as the difficulty and potential damage during removal. Items forming part of the building’s fabric are considered part of t...

Computer-assisted audits can be categorized into two types, as specified in IR297: Systems Audit A systems audit involves a detailed analysis and evaluation of a complete accounts computer system—from data entry to the posting of financial accounts. This process includes the IRD engaging with staff who have a day-to-day understanding of the computer programs and operations. Data Download This refers to the analysis of client data using commercially available software. Both MYOB and Xero accounting software meet the IRD's requirements for maintaining electronic records under IR297a, including approval to store customer data offshore. If you're storing records electronically, utilizing the ‘Attachments’ feature in both Xero and MYOB is highly recommended. This allows customers to upload copies of invoices and other essential documents directly into the software. It’s important to note that if a customer ends their subscription to MYOB or Xero, they must export or back up any data...