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LAWCOMM 403 long notes.docx
LAWCOMM_403_long_notes.docx
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LAWCOMM 403 long notes.docx-CONTENTS Tips ...........
LAWCOMM_403_long_notes.docx-CONTENTS Tips ......................................................................................................................................................................................... 4 Introducon ............................................................................................................................................................................
LAWCOMM 403 long notes.docx-CONTENT...
LAWCOMM_403_long_notes.docx-CONTENTS Tips ......................................................................................................................................................................................... 4 Introducon ............................................................................................................................................................................
Page 102
(a)
in deriving assessable income; or
(b)
in carrying on a business for the purpose of deriving assessable
income …
Depreciable property can be either tangible or intangible (
secon EE 6(2) and (3)
)
“Depreciable intangible property” means the property listed in
Schedule 14
(
secon EE 62(1)
), including:
o
A patent, or the right to use a patent
o
The right to use a copyright, trademark, design, plan or similar
o
The right to use land, plant or machinery
o
Soſtware copyright
o
Management rights and licence rights created under the Radiocommunicaons Act 1989
o
Consents granted under the Resource Management Act 1991
o
Copyright in a sound recording
o
Plant variety rights, or the right to use them
o
But remember, for it to be depreciable, it must sll be reasonably expected to decline in value under normal
circumstances
EE 7
What is not depreciable property?
The following property is not
depreciable property
:
(a)
land …
(b)
trading stock:
(assets acquired for the purpose of resale)
(c)
livestock [in some circumstances]:
(d)
financial arrangements:
…
(g)
property that its owner chooses, under secon EE 8, to treat as not depreciable:
…
(j)
property for whose cost a person is allowed a deducon …
(if someone is entled to a full deducon, then you
shouldn’t be allowed to a depreciaon deducon)
It might not be appropriate to deny depreciaon deducons for land because it can go down in value:
o
Even though the market for land is consistently going up in value, it will at some point go back down
o
Land can also be slowly eroded over me by a flowing river or rising sea levels, thus reducing its value
o
But land is not reasonably expected to decline in value while it is used, so it does not meet the test for secon
EE 6(1)
Why would a taxpayer choose not to depreciate an asset? (relevant for secon EE 7(g))
o
The asset might be expected to increase in value even though it is reasonably expected to decrease in value
(e.g. vintage cars)
o
Because you make a net loss on your income – a depreciaon deducon tends to be important only when you
make a profit
WHAT IS “TRADING STOCK”?
Trading stock means “property that a person who owns or carries on a business has for the purpose of selling or
exchanging in the ordinary course of the business” (
secon EB 2(1)
)
Trading stock includes (
secon EB 2(2)
):
o
Works in progress (i.e. goods that are sll being made into trading stock)
o
Materials used in producing trading stock
Trading stock does not include (
secon EB 2(3)
):
o
Land
o
Depreciable property
o
Financial arrangements
o
Livestock not used in a dealing business
o
Consumable aids
(e.g. oil used for machinery needed for your business like an ice cream machine)
Trading stock is not depreciable because it has its own deducon regime (see below)
WHAT ARE “FINANCIAL ARRANGEMENTS”?
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