2006 media releases
Inland Revenue confirms stand on depreciation
29 May 2006
Inland Revenue advises that it considers it is unacceptable for residential rental property owners to break up their properties into smaller components in order to get higher depreciation rates for tax purposes.
"In the past, we have disallowed the higher depreciation claims and, after consideration by the Adjudication and Rulings business group, we continue to believe this practice is not acceptable," says Naomi Ferguson, Deputy Commissioner Service Delivery.
"Property owners are still able to depreciate chattels such as carpets, drapes, light fittings, whiteware and so on, as separate assets. There is also provision to depreciate separately items such as water heaters, clothes lines and other fittings that are not part of the building," says Miss Ferguson.
The items that Inland Revenue does not believe to be separate assets are internal walls, doors, electrical wiring and plumbing and so on, as well as furniture and fittings that are permanently attached and are regarded as being part of the building. These include items such as kitchen cupboards, bathroom vanities and built-in wardrobes.
Some residential property owners have been splitting these components out and depreciating them as separate assets in order to take advantage of higher depreciation rates listed under the "Building fit-out (when in the books separately from building cost)" asset category.
"Property owners who have been splitting these components out from the cost of the building will have overstated their depreciation claim in the past, but we won't be asking them to adjust previous years' income," says Miss Ferguson. "However they will be required to add the value of the various 'components' they have been depreciating individually into the cost of the building, and combine the depreciation claimed for those individual assets."
This will identify the asset to be depreciated, the cost of that asset and the depreciation claimed to date. The building should then be used to claim depreciation at the correct rate. This will depend on the type of building and when it was acquired.
Property owners with cases still under investigation or going through the disputes process may be able to apply this approach from the first period not under dispute or being investigated. "A tax payer may, of course, decide not to settle and to take the matter through the disputes process if they do not agree with the Commissioner's treatment," says Miss Ferguson.
An Interpretation Statement on this ruling is being prepared for public consultation.
Other media releases this year
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- Owner of chain of rest homes get 21-month prison term for million dollar tax evasion
- Family assistance payments to be made early
- Inland Revenue welcomes tough sentence on tax fraudster
- False identity charges lead to jail term for Christchurch woman
- PAYE evasion leads to jail term
- Family assistance payments to be made early
- Inland Revenue welcomes Govt3 award wins
- PAYE Subsidy available for employers
- One month left to seek penalty cancellations
- Christchurch painter jailed on tax charges
- Inland Revenue can offer help to weather-affected businesses
- Prison for Tauranga contractor on tax fraud charges
- Family Assistance payments to be made early
- Tax discount for new businesses
- Tauranga contractor jailed for tax offences
- Inland Revenue revises rules on shortfall penalty application
- Inland Revenue Flood Support
- Family Assistance to be paid early
- Inland Revenue website wins People's Choice award
- Tax due date coming up on 7 February
- Family assistance payments to be made early
Corporate Affairs
Inland Revenue
To make a media query:
Phone 04 890 1698 or email mediaqueries@ird.govt.nz
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P O Box 2198
Wellington 6140
New Zealand
Date published: 29 May 2006
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