NZ Taxation Advisory Blog

The Income Tax Act (ITA) 2007 includes various schedules to define tax rates and rules for different contexts. Here's an overview of some key schedules: Schedule 1: Basic Tax Rates (Personal, Company, Trustees, RWT, etc.) Schedule 2: Basic Tax Rates for PAYE Income Payments (Tax Codes) Schedule 3: Provisional Tax and Terminal Tax Schedule 4: Standard Rates of Tax for Schedular Payments Schedule 13: Depreciable Land Improvements What Are Depreciable Land Improvements? Schedule 13 of the ITA 2007 lists various depreciable land improvements. These include: Chimneys Fences Hardstanding: Ground surfaced with a hard material for parking vehicles. Retaining Walls Roads (Driveways) Links Schedule 1 - Basic Tax Rates (ITA 2007) Schedule 2 - PAYE Income Payments (ITA 2007) Schedule 3 - Provisional and Terminal Tax (ITA 2007) Schedule 4 - Schedular Payments (ITA 2007) Schedule 13 - Depreciable Land Improvements (ITA 2007) What is a Road? (NZTA) Driving Basics - What is a Road? (Drive.govt.nz)

T he Income Tax Act (ITA) outlines the rules and permissions related to depreciation in Part D and Part E. Here's a breakdown of key sections: Section DA1: General Permission Section DA1 of Part D permits deductions for amounts of expenditure or loss, including depreciation loss, when deriving income. Part E: Timing and Quantifying Rules Subpart EA: Rules for specific items like: Trading stock Livestock Excepted financial arrangements (EA1) Revenue account property (EA2) Prepayments (EA3) Subsections of Interest Depreciation Loss : When a person has a depreciation loss for an item (Section EE1(2)). Depreciation Recovery Income : When a person recovers depreciation income for an item (Section EE1(3)). Depreciable Property : Defined under Section EE6 as property expected to decline in value while being used or available for income generation. Exclusions from Depreciable Property : Section EE7 lists items not considered depreciable property, such as land and trading stock. Links Secti...

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...

If your business purchases an asset classified as low-value, you can claim the entire cost as depreciation immediately rather than spreading it over several years. This simplifies accounting and provides an immediate tax benefit. What Qualifies as a Low-Value Asset? From 17 March 2021, assets costing less than $1,000 qualify for immediate depreciation. If you are registered for GST, the cost should be excluding GST. If you are not registered for GST, the cost should be including GST. Links IRD Website - Low Value Assets

There is an option to elect not to depreciate certain assets in some cases, which can provide flexibility for your tax planning. This election is particularly useful for those who work from home and change the use of an asset from personal to business purposes.  By electing not to depreciate the asset, you avoid the complexities of calculating depreciation each year, which could be beneficial in certain circumstances.  Links Smart business guide

Is Website Domain Registration an Allowable Deduction?  The answer depends on whether the expense is classified as capital or revenue in nature. Capital vs. Revenue Expenditure The distinction between capital and revenue expenses is critical because capital expenses must be depreciated over time, while revenue expenses can be deducted in full in the year they are incurred. According to established case law, three key tests help determine whether an expense is capital in nature: Is it of a one-off nature? Does it provide an enduring benefit? Is it part of the business structure of the taxpayer? Based on these tests, the cost of acquiring a domain name is generally considered capital expenditure because: It is typically a one-off cost. It provides long-term benefits. It forms part of the taxpayer’s business structure. Conclusion For most businesses, website domain registration is considered capital expenditure and must be written off through depreciation. However, businesses purchasi...