LAWCOMM 403 long notes.docx-CONTENTS Tip...
LAWCOMM_403_long_notes.docx-CONTENTS Tips ......................................................................................................................................................................................... 4 Introducon ............................................................................................................................................................................
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LAWCOMM 403 long notes.docx-CONTENT...
LAWCOMM_403_long_notes.docx-CONTENTS Tips ......................................................................................................................................................................................... 4 Introducon ............................................................................................................................................................................
##### Page 103
EW 3
What is a ﬁnancial arrangement?
(2)
A ﬁnancial arrangement is an arrangement under which a person receives money in consideraon for that person, or
another person, providing money to any person—
(a)
at a future me; or
(b)
on the occurrence or non-occurrence of a future event, whether or not the event occurs because noce is given or
not given.
This is very broad – it captures someone giving money in exchange for receiving money or other property in the future
“USED OR AVAILABLE FOR USE”
“Available for use”
o
During the COVID lockdown, there were huge delays for the delivery of plant and machinery arriving for
businesses – they were oﬅen sing on ships in the harbour, so they were not available for use and thus not
depreciable
CALCULATION UNDER SECTIONS EE 9 TO EE 11
(1)
[The methods of calculang an amount of depreciaon loss are
—]
(a)
the straight-line method …
(b)
the diminishing value method …
(c)
the pool method …
(2)
[The rates of depreciaon are
—]
(a)
the economic rate …
(b)
the annual rate …
(c)
a special or a provision rate …
The straight-line method
o
Say a new car is worth \$32,000
o
With the straight-line method, you deduct the same amount each year (
the amount is calculated by taking the
annual depreciaon rate and mulplying it by the cost of the asset
; 15% of 32,000 in this case = 4,800)
o
Therefore, you depreciate \$4,800 every year unl the value reaches 0 over the life of the asset
The diminishing value method (reducing balance method)
o
The amount of depreciaon diﬀers each year –
the amount is calculated by taking the annual depreciaon rate
and mulplying it by the adjusted tax value
(also called carrying value or closing book value)
of the asset
o
This method reﬂects a more realisc calculaon of the value of the asset because the rate at which an asset
depreciates will decrease over me (i.e. highest rate of depreciaon at the start, and lower rates over me)
o
This method is also more popular because the taxpayer gets accelerated rates of depreciaon at the start
immediately aﬅer acquiring the asset
The pool method
o
This method is applied for groups of assets (that tend to be low value) and depreciate them as if they were a
single asset
CHOOSING A METHOD

##### Page 104
EE 12
Depreciaon methods
(2)
The depreciaon methods are—
(a)
the diminishing value method, which—
(i)
may be used for any item of depreciable property except one referred to in subparagraph (ii) or (iii); and
(ii)
must not be used for an item of ﬁxed life intangible property; and
(iii)
must not be used for an item of property in the circumstances described in secon EZ 9
(Pool method for
items accounted for by globo method for 1992–93 income year):
(b)
the straight-line method, which—
(i)
may be used for any item of depreciable property; and
(ii)
must be used for an item of ﬁxed life intangible property:
(c)
the pool method, which—
(i)
may be used for any item of poolable property except one referred to in subparagraph (ii); and
(ii)
must not be used for an item of ﬁxed life intangible property; and
(iii)
must be used for an item of property in the circumstances described in secon EZ 9.
Generally, a taxpayer can choose to use either the straight-line method or the diminishing value method
But there are some assets for which one of the methods are not able to be used:
o
If depreciang “ﬁxed life intangible property”, you can only use the straight-line method
“Fixed life intangible property” might be a licence to use speciﬁed intellectual property for ten years
o
The pool method can only be used for “poolable property”
“Poolable property” generally means property worth less than \$2000 (
secons EE 65 and EE 66
)
AMOUNT OF DEPRECIATION LOSS
The amount of depreciaon loss is the lesser of either the adjusted tax value, or the amount produced by the standard
calculaon
o
The standard calculaon is [annual rate] x [value or cost] x [months/12] (
secon EE 16
)
RATES OF DEPRECIATION
E
CONOMIC
DEPRECIATION
RATE
The Commissioner can set economic depreciaon rates from me to me by issuing a Determinaon under secon
91AAF of the Tax Administraon Act 1994 (
secon EE 27(3)
)
In 1993, the Commissioner issued a determinaon called
Determinaon DEP 1
: Tax Depreciaon Rates General
Determinaon Number 1
o
This determinaon has been amended from me to me since
o
It consists of a long list of diﬀerent sorts of property and the depreciaon rates applicable to them – the list
consists of two parts:
industry categories (agriculture; audio recording; bakeries; etc); and
asset categories (boilers; books; building ﬁt-out; etc).
A
NNUAL
DEPRECIATION
RATE
The annual rate is generally the economic rate
– that is, the rate set by the Commissioner in
Determinaon Dep 1
(
secon EE 31
)
o
Secon EE 31 previously provided for accelerated depreciaon
In some circumstances, taxpayers could mulply the economic rate by 1.2
An increased rate of depreciaon deducons for businesses provides an incenve for them to buy
producve assets (and thus boost the producvity of New Zealand’s economy)
But as of 2010, this is no longer permied (but connues to apply for items purchased before 2010)
The depreciaon rate for a building with an esmated useful life of 50 years or more is 0%
(i.e. you cannot get a
depreciaon deducon for buildings) (eﬀecve from 2011) (
secon EE 31
)
o
This covers all buildings except some special cases, such as glasshouses

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