When calculating New Zealand taxable income, assets owned by an enterprise are depreciated over their normal useful life using the straight-line method or the diminishing-value method. The method chosen can generally be changed from year-to-year. Depreciation is not mandatory, but notification of electing not to depreciate must be included in the tax return.

The following are the generally prescribed rates for various asset types using the straight-line method:

Asset Type	Depreciation Rates (Range in %)
Buildings* and structures	1.5% up to 21%
Transportation vehicles	4% up to 100%
Plant and machinery	6% up to 100%
Office equipment and furniture	3% up to 100%
Computers and related hardware	7% up to 67%

The following are the generally prescribed rates for various asset types using the diminishing-value method:

Asset Type	Depreciation Rates (Range in %)
Buildings* and structures	2% up to 30%
Transportation vehicles	6% up to 100%
Plant and machinery	8% up to 100%
Office equipment and furniture	4% up to 100%
Computers and related hardware	10% up to 67%

*Buildings with a useful life of 50 years or more are not depreciable from the income year 2024-25. Depreciation on such buildings was reinstated for a temporary period from 2020-21 until 2023-24 (Earlier not depreciable from the income year 2011-12 to 2019-20).

A full list of rates by industry and asset type and a rate finder tool can be found on the New Zealand Inland Revenue website. An updated general depreciation rates guide has also been published, which sets out the rates for both diminishing value (DV) and the straight line (SL) that apply for assets other than buildings acquired on or after 1 April 2005 and buildings acquired on or after 19 May 2005. Further, an updated guide has been published providing detailed information on the working and claim of depreciation.

Accelerated Depreciation

Effective from the income year 2021-22, assets with an acquisition cost of NZD 1,000 or less may be depreciated in full in the year of acquisition subject to the following conditions:

It cannot have been acquired in the same period as other assets created or purchased from the same supplier that have the same depreciation rate;
The asset cannot become part of any other depreciable property; and
The cost of the asset may not be otherwise deductible.

Asset Pooling

Asset pooling is possible by applying the diminishing-value method and using the lowest rate of depreciation applicable to any asset in the pool. Assets that may be pooled include those with an acquisition cost or adjusted tax value of NZD 5,000 or less (effective from income year 2015-16) and are used exclusively for business purposes.

The value of the pool for depreciation purposes is the average opening and closing value of the pool. Assets may be added to a pool and multiple pools combined, but an asset may not be removed from the pool unless it is required due to the asset being used for non-business purposes.

Intangible assets may not be pooled.

Intangible Assets

Intangible assets are depreciated depending on whether or not intangible assets have a fixed life or an economic life. An intangible asset is depreciated using the straight-line method when it has a fixed useful life that can be determined at the time of acquisition. Intangible assets that do not have a fixed life but are expected to have an economic life are depreciated in a similar way as tangible depreciable assets, i.e., using a diminishing value or straight-line method.

In 2016, amendments were made to the tax rules concerning non-deductible and non-depreciable R&D expenditures. These include:

Capitalized expenditure on an underlying item of intangible property that gives rise to an item of depreciable intangible property can be included as part of the depreciation costs of the depreciable property from the beginning of the income year 2011-12. In case of expenditure relating to patents, patent applications, and plant variety rights, they can be included from the income year 2015-16 for expenditure incurred on or after 7 November 2013;
Capitalized development expenditure incurred on or after 7 November 2013 for the development of intangible assets that are not depreciable for tax purposes is allowed as a one-off income tax deduction in the year in which the intangible asset is derecognized (written off) for accounting purposes. In the event the asset is disposed of for consideration or is used or becomes available for use, the deduction is clawed-back; and
Costs for design registration, design registration application, and industrial artistic copyright are considered depreciable from the income year 2015-16 for expenditure incurred on or after 7 November 2013.

Recapture

When an asset is sold, and the sales price exceeds its depreciated value, the difference is treated as income in the year of its sale.

Purchase Price Allocation Rules

New Zealand introduced the new purchase price allocation rules effective 1 July 2021, which provide the manner in which the parties to a transaction must allocate the transaction price across different classes of assets in a purchase and sale agreement. The rules apply to commercial property sales and mixed supplies (commercial properties and farms) with a purchase price of more than NZD 1 million and to residential properties with purchase prices of more than NZD 7.5 million. The rules also apply to business and asset sales.

Under the new rules, the purchase price allocation (PPA) is determined in the following manner:

Where a PPA is agreed in writing before filing the tax returns, the PPA is binding on both parties, and the tax return must be filed as per the agreed allocation;
If the PPA is not agreed before settlement, the vendor may unilaterally determine a PPA, and the purchaser will be bound by it if it is notified to the purchaser and the Inland Revenue within 3 months of settlement;
If the vendor does not notify a unilateral PPA within 3 months of settlement, the purchaser may unilaterally advise a PPA within a further 3 months, which will bind the vendor if it is notified to the vendor and the Inland Revenue within that period;
In the absence of an agreed or a unilateral PPA, the Inland Revenue can determine the allocation; and
If the agreed or unilateral PPA does not reflect the relative market value of the relevant assets, the Inland Revenue can reallocate the PPA as per the market value.

The purchaser will be treated as having no cost base in the assets acquired if the PPA is neither agreed nor determined. The disallowance of deductions arising from this rule is not a permanent disallowance and will be deferred until the PPA is determined.

Powerful Tax Solutions

Tax Rules Engine

Collaboration Tools

Latest Tax News