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It's important to keep accurate records of assets you buy and sell and the depreciation you claim. You also need to show any loss or gain for depreciated business assets you kept for private use.
You must keep your records for at least seven years and they should include:
- the purchase (and sale where relevant) of your business assets, and
- a GST tax invoice if you're GST-registered.
You should also keep a register of your depreciable assets which shows the:
- cost price of the asset
- depreciation claimed each year, and
- adjusted tax value.
Definition: Adjusted tax value
The value of your asset at the end of each tax year after the annual depreciation deduction.
Selling or disposing of a depreciated asset
If you sell or dispose of an asset you claimed depreciation on you need to show any loss or gain in your income tax return.
This also applies if you've:
- claimed depreciation on an area of your home set aside for business (eg, a home office) and then sell your home
- ceased business.
Example: Depreciation on asset sold
|Computer purchased for||$2,500|
|Adjusted tax value||$1,500|
|Computer sold for||$1,900|
The $400 is depreciation recovered. It must be included in your income tax return as income in the tax year the computer was sold.
Use our Depreciation claim - calculate your tax deduction tool to work out any loss or gain after selling an asset.
Keeping a depreciated business asset for private use
You need to show any loss or gain at the beginning of the next income tax year for any depreciated asset you:
- stopped using for business, but
- kept for private use.
You need to use the market value of the asset for this.
This also applies if you cease to operate a business. You have to adjust your income tax return for the year you ceased business or the asset changed use. You need to do this even if the loss or gain isn't realised until a later income year.
Definition: Market value
Market value is the amount you could reasonably sell an asset for at the time.
A professional valuation will give you an accurate assessment. This can be worthwhile for high value assets.
You can also estimate market value. Try finding similar items of the same age and condition for sale in second-hand shops or on sites like Trade Me.
Keep records to justify the values you put on your assets.