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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 103
EW 3
What is a financial arrangement?
…
(2)
A financial arrangement is an arrangement under which a person receives money in consideraon 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 noce 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 sing 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 calculang an amount of depreciaon loss are
—]
(a)
the straight-line method …
(b)
the diminishing value method …
(c)
the pool method …
(2)
[The rates of depreciaon 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 depreciaon rate and mulplying it by the cost of the asset
; 15% of 32,000 in this case = 4,800)
o
Therefore, you depreciate $4,800 every year unl the value reaches 0 over the life of the asset
The diminishing value method (reducing balance method)
o
The amount of depreciaon differs each year –
the amount is calculated by taking the annual depreciaon rate
and mulplying it by the adjusted tax value
(also called carrying value or closing book value)
of the asset
o
This method reflects a more realisc calculaon of the value of the asset because the rate at which an asset
depreciates will decrease over me (i.e. highest rate of depreciaon at the start, and lower rates over me)
o
This method is also more popular because the taxpayer gets accelerated rates of depreciaon 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
Depreciaon methods
…
(2)
The depreciaon 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 secon 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 secon 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 depreciang “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 (
secons EE 65 and EE 66
)
AMOUNT OF DEPRECIATION LOSS
The amount of depreciaon loss is the lesser of either the adjusted tax value, or the amount produced by the standard
calculaon
o
The standard calculaon is [annual rate] x [value or cost] x [months/12] (
secon EE 16
)
RATES OF DEPRECIATION
E
CONOMIC
DEPRECIATION
RATE
The Commissioner can set economic depreciaon rates from me to me by issuing a Determinaon under secon
91AAF of the Tax Administraon Act 1994 (
secon EE 27(3)
)
In 1993, the Commissioner issued a determinaon called
Determinaon DEP 1
: Tax Depreciaon Rates General
Determinaon Number 1
o
This determinaon has been amended from me to me since
o
It consists of a long list of different sorts of property and the depreciaon 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
Determinaon Dep 1
(
secon EE 31
)
o
Secon EE 31 previously provided for accelerated depreciaon
In some circumstances, taxpayers could mulply the economic rate by 1.2
An increased rate of depreciaon deducons for businesses provides an incenve for them to buy
producve assets (and thus boost the producvity of New Zealand’s economy)
But as of 2010, this is no longer permied (but connues to apply for items purchased before 2010)
The depreciaon rate for a building with an esmated useful life of 50 years or more is 0%
(i.e. you cannot get a
depreciaon deducon for buildings) (effecve from 2011) (
secon EE 31
)
o
This covers all buildings except some special cases, such as glasshouses
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