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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 100
the opening value of trading stock is deducble: s DB 49;
payments to a spouse, civil union partner or de facto partner for anything other than services are not deducble
(except with the CIR’s prior approval): s DB 57;
expenditure is not deducble if denied under s GA 1 (the general an-avoidance rule): s DB 58.
EXPENDITURE IN CONNECTION WITH EMPLOYEES AND CONTRACTORS
Subpart DC sets out rules relang to the deducbility of expenditure incurred in connecon with employees and contractors.
These include the following.
1.
lump-sum bonuses etc. paid to an employee on rerement are deducble: s DC 1;
2.
payments to a spouse, civil union partner or de facto partner for services are not deducble (except with the CIR’s prior
approval): s DC 5;
3.
employers’ contribuons to employee superannuaon schemes are deducble: s DC 7;
4.
payments for restricve covenants and exit inducements are deducble, if taxable to the recipient under s CE 9: s DC 9.
SPECIFIED EXPENDITURES
Subparts DD to DZ contain rules relang to various types of expenditure including the following.
1.
expenditure on entertainment: subpart DD;
2.
expenditure on motor vehicles: subpart DE;
3.
farming and aquaculture expenditure: subpart DO;
4.
forestry expenditure: subpart DP;
5.
expenditure incurred by life insurance companies: subpart DR;
6.
film industry expenditure: subpart DS;
7.
petroleum mining expenditure: subpart DT;
8.
mineral mining expenditure: subpart DU;
SPECIFIED ENTITIES
Subpart DV sets out rules relang to deducbility for specified enes, including:
1.
superannuaon funds;
2.
investment funds;
3.
non-profits;
4.
trusts;
5.
building sociees;
6.
Maori authories;
7.
group companies;
8.
amalgamated companies.
SPECIFIED INDUSTRIES
Subpart DW sets out rules relang to deducbility for:
1.
airport operators;
2.
bloodstock racing;
DEPRECIATION DEDUCTIONS
Why do we have depreciaon – couldn’t we just give a loss when you sell the asset?
o
We have depreciaon deducons to account for the fact that some assets reduce in value over me
o
Why not just give a loss upon sale of the asset? – because depreciaon recognizes the loss in the year it is
incurred; we want to tax people’s realisc profits they make within the income year, and it would be realisc
to account for depreciaon losses when determining someone’s profit
What assets should be depreciable?
Page 101
o
Tangible assets that lose value or become more obsolete over me
o
Intangible assets whose life is limited by the law (e.g. resource consents, licences etc. that only last for a period
of me)
What rate of depreciaon is appropriate?
o
For tangible property – depends on its useful/economic life
What happens if you sell the asset?
o
The proceeds of sale from the adjusted tax value will either produce a loss or taxable profit
o
If sold for more than the purchase price, you must pay back the depreciaon deducons and the profit made
will not be taxable as it is a capital gain
GENERAL RULES
DA 1
General permission
(1)
A person is allowed a deducon for an amount of expenditure or loss,
including an amount of depreciaon loss
, to the
extent to which the expenditure or loss is
—
(a)
incurred by them in deriving—
(i)
their assessable income; or
(ii)
their excluded income; or
(iii)
a combinaon of their assessable income and excluded income; or
(b)
incurred by them in the course of carrying on a business for the purpose of deriving
—
(i)
their assessable income; or
(ii)
their excluded income; or
(iii)
a combinaon of their assessable income and excluded income.
Secon DA 1 provides for the deducon of both expenditure and depreciaon losses if the general permission is met
EE 1
Depreciaon losses
(1)
This subpart—
(a)
quanfies the amount of depreciaon loss
for which a person is allowed a deducon if the provisions of Part D
(Deducons) are met; and
(b)
quanfies the amount of depreciaon recovery income
that is income under Part C (Income).
(2)
A person has an amount of
depreciaon loss
for an item for an income year if—
(a)
the person owns an item of property
, as described in secons EE 2 to EE 5; and
(b)
the item is depreciable property
, as described in secons EE 6 to EE 8; and
(c)
the item is used, or is available for use
, by the person in the income year; and
(d)
the amount of depreciaon loss is calculated for the person, the item, and the income year under
secons EE 9 to
EE 11
.
(3)
A person has an amount of
depreciaon recovery income
for an item for an income year if—
(a)
the person owns an item of property, as described in secons EE 2 to EE 5; and
(b)
the item is depreciable property, as described in secons EE 6 to EE 8; and
(c)
the item is disposed of or an event of a kind described in secon EE 47 or EE 52 occurs; and
(d)
the amount of depreciaon recovery income is calculated for the person, the item, and the income year under any
of secons EE 22(5), EE 38(5), EE 48(1), EE 49(2), EE 51(3), EE 52(3), EZ 23B, and EZ 23BB (which relate to property,
and interests in property, acquired aſter depreciable property was affected by the Canterbury earthquakes).
“OWNERSHIP” OF PROPERTY
Secons EE 2 to EE 5 help to define “ownership”
A lessee who has expended money on an asset (improvement or fixture) that is part of the leasehold asset is entled to
a depreciaon deducon for that asset (
secon EE 4
) – but the freehold owner is not entled to it (
secon EE 5
)
WHAT IS “DEPRECIABLE PROPERTY”?
EE 6
What is depreciable property?
(1)
Depreciable property
is property that, in normal circumstances, might reasonably be expected to decline in value while it
is used or available for use—
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