Business income tax: Depreciation
In your income tax return, you must claim depreciation - or "wear and tear" - on most fixed assets (unless you elect not to depreciate - see "Depreciation methods for fixed assets"). A fixed asset is something that your business owns and that you expect to use for business purposes for more than a year. There are some assets that do not depreciate, for example, land or trading stock.
You cannot claim the cost of an asset as a business expense against your income.
Use our Depreciation rate finder to look up the depreciation rate for any asset. Once you know the rate, you can calculate depreciation and record the asset's adjusted tax value (cost price less all depreciation calculated since you bought it).
Deductions for assets you no longer use
You may claim the remaining adjusted tax value of a depreciable asset that you have not disposed of if:
- you no longer use the asset in a business or to produce income, and
- neither you nor an associated person intends to use the asset in a business or in the future to derive gross income, and
- the cost of disposing of the asset would be more than any proceeds from disposing of the asset, and
- the asset is neither a building nor an asset being depreciated using the pooling method.
From the 2002/2003 income year, you are no longer required to apply for this deduction. You may deduct the remaining adjusted tax value of the asset if all of the above conditions are met.
However, for previous years you have to complete the Application for a deduction of an asset no longer used (IR720).
Selling and disposing of assets
If you sell or dispose of an asset for a different amount from its adjusted tax value, you must generally make an adjustment in your end-of-year tax return to account for the loss or gain.
For more detail, see our Depreciation - a guide for businesses (IR260).
Date published: 14 Oct 2004