Depreciation is calculated annually over the useful life of the asset as part of your end-of-year accounts. To calculate the depreciation, you need to know the asset’s value, your depreciation method and the approved Inland Revenue depreciation rate.
Depreciation is a method of spreading the cost over time of significant assets you buy for your business or your work as a sole trader or contractor. This can be effective if you’re looking to mitigate the tax implication of the purchase over a more extended period.
Instead of claiming the total cost of the item initially, you claim the amount that the asset depreciates each year. The Inland Revenue approved depreciation rates can be claimed annually in your income tax return.
For tax purposes, you must depreciate assets that:
- Are owned by you or your business and are available for business use
- Cost more than $500
- Have an expected life of more than 12 months
You cannot claim tax for depreciation of
- Assets you’ve elected to treat as not depreciable with inland revenue
- Trading stock
- Land or buildings (barring fixture or land improvements)
- Most intangible assets e.g. goodwill
- Low-value assets (less than $500) which are entirely written off when you buy them
- Assets where the costs are already deducted under another tax provision
- Assets that don’t decline in economic value because of compensation for loss or damage
- Assets where the cost was or is allowed as a deduction under special provisions relating to primary sector land improvements.
We can assist you in determining the depreciation of any assets you may be wishing to claim for your business or work as a sole contractor. Discuss your depreciated assets with us for more information.
