myIR, payments and more
Claiming business expenses: Capital (consumer) contributions
A payment is a capital contribution if it is, among other things made towards the costs of another person's depreciable property, if the payment is not otherwise income.
A common example is a payment from a farmer to an electricity lines company towards the cost of extending the lines network. The farmer might do this to enable a new building to be connected to the company's network.
New rules apply from 21 May 2010
From 21 May 2010 each new capital contribution must be either:
- counted as income of the recipient (for example, the lines company), or
- treated as a reduction in the depreciation asset base (the tax book value of the recipient's assets, for example, the new lines) by the amount of the capital contribution.
If the recipient chooses to treat the payment as reducing the asset book value, this election can't be changed.
If the payment is treated as income, the income is spread equally over 10 years.