From the 2020-2021 income year onwards we're changing depreciation for commercial and industrial building. Previously, tax depreciation on all buildings was at 0% because of 2011 tax changes.
Now if your business is eligible you'll be able to claim depreciation deductions in your tax return for commercial and industrial buildings. These changes are to help:
- you with your business cash flow in the short-term
- economic recovery long-term by encouraging you to invest in new and existing buildings.
Residential buildings are not part of these depreciation changes. This is because they depreciate at a much slower rate.
We'll be updating the rest of our website in the coming days to support these recent changes.
Depreciation for short-stay accommodation and residential buildings
Whether or not you're able to claim depreciation on property used for short-stay accommodation depends on if it's seen as residential or commercial.
Generally speaking, if there are 4 or more separate units within the same property and they're used for short-stay accommodation (such as AirBnB), they can be depreciated.
Low-value asset threshold for depreciation
The Government has recently passed legislation that temporarily increases the low-value asset threshold for depreciation from $500 to $5,000. This will allow you to deduct the full cost of your business assets with a value of less than $5,000 in the year they purchased them. This is instead of having to spread the cost over the life of the asset.
The low-value threshold will be raised further to allow the immediate expensing of assets that cost less than $5,000 in the 2020-2021 income year.
The Government is only raising the threshold for a short time until 16 March 2021. After that date it will no longer apply. They're doing this so you and other business people keep investing in their businesses throughout the COVID-19 outbreak.
From 17 March 2021 onwards, this threshold will be permanently increased from $500 to $1,000. We'll update the rest of our website to show this information in the coming days.
Example: High Street Hotel
High Street Hotel (through its company) owns several stand-alone motel buildings which have a tax book value of $3m. Under the current tax law, these motel buildings are not depreciated for tax. From 2021/2022, High Street Hotel will be able to depreciate the motel buildings at a rate of 2% and will therefore be able to claim a deduction of $60,000 in the 2021/2022 year.
Example: Ivy the Landlord
Ivy Mundell owns a number of residential rental properties around Auckland that are all tenanted. Under the current law these buildings are not depreciated for tax. The tax depreciation changes introduced as part of the COVID-19 relief measures do not apply to residential buildings and therefore Ivy will still not be able to depreciate the rental properties in the 2021/2022 year.
Example: Metal Works Ltd
Metal Works Ltd manufactures machine parts and owns a factory building and distribution warehouse. The factory has a tax book value of $4m and the warehouse has a tax book value of $2m. As these are both commercial/industrial buildings, from 2020/2022 Metal Works Ltd can depreciate these buildings at a rate of 2% diminishing value (or 1.5% straight line). In 2021/2022, Metal Works Ltd is entitled to a deduction for tax depreciation of $120,000 based on 2% diminishing value rate ($80,000 + $40,000).