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NZ depreciation discussion document

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  • NZ depreciation discussion document


    The discussion document is out now. 113 pages so I will have to read it once work is over.

    full text of the Minister of Revenue's Press Release:

    Revenue Minister Michael Cullen today welcomed the publication of an issues paper inviting consultation on how to improve the tax rules on depreciation of assets.

    "I am concerned that the current economic depreciation rates may not accurately reflect the reality of economic life in a time of rapidly advancing technology. If they do not, they may have a disincentive effect on the level of capital investment and may be biased in favour of long-term investments such as rental housing and against short-term investments such as high tech machinery.

    "It is important to ensure, as far as possible, that investment decisions are not made for tax purposes," Dr Cullen said.

    The paper is the first step in the policy making process. It suggests ways of reducing possible tax biases and resolving practical problems with the application of the rules.

    Officials will draw up recommendations based on the feedback received.

    The closing date for submissions on the smaller technical issues that could be included in the taxation bill planned for November is 31 August.

    The closing date for submissions on the larger issues, which readers may need more time to consider, is 30 September. These issues include: - methods of calculating depreciation for plant, equipment and buildings; - depreciation loadings; and - the extent to which owners of rental property should be able to separate out structural components of a building and depreciate them at separate rates.

  • #2
    An interesting document, and dare I say it, mostly on the right track... As I see it the impact on residential property investors is likely to be two fold:

    1. A lower over all depreciation rate for structures effectively %3 diminishing, %2 straight line.

    2. A decreased or removed ability to value individual items of the building kit out and depreciate these at an increased rate. In particular there is some suggestion of balancing things so that if investors do individually value items, the depreciation rate for the building structure should be lowered accordingly. I believe the favoured approach is to create a (relatively short) list of items which may be depreciated seperately ie curtains, carpets, light fittings and give the taxpayer the option of individually valuing items on this list or just including them as part of the property value, to save compliance costs.

    1. seems fine to me, if this is how buildings actually depreciate then so be it... And if the 1 percent difference bites too much you were probably too heavily geared anyway...

    2. Also seems fine to me, reduces compliance costs of getting valuations for individual items, also removes some of the incentives to buy houses to decrease your taxes...

    Only one concern, some of the items that the IRD seems to be suggesting might be thought of as part of the building (ie Curtains, Carpets, Lightfittngs) are traditionally thought of as chattels, which the banks won't lend against because of their low life span, if these are depreciated at the general structural rate will this be unfairly biased against the investor, in that they will need to be replaced long before their replacement cost has been liberated from your taxes?

    Thanks CJ for the link
    New to property investing? See: Best PropertyTalk Threads for New and Old Investors And/Or:Propertytalk Wiki


    • #3
      It seems are a reasonably fair approach. Monid pretty much summed up my view re a slightly lower deprecation charge affecting your portfolio.

      THe one interesting point is they suggest that if you depreciate the whole structure at the new lower rate, they will allow you to claim more for R&M. Where prevously you would have to capitalise and deprecate, you will now be able to expense as incurred (the example they use is you replace a broken water heater).

      They seem to be concerned that there is too much investment in residential accomodation. But hasn't the government just annonced a $800m package because there isn't enough. Let supply and demand rule.

      Hearld puts there view across:



      • #4
        Hi Guys

        Valuit have put out this email as a follow up to their recent newsletter.

        Welcome to this special edition
        Following on from Dr Cullen’s earlier announcements the Inland Revenue Department ("IRD") and The New Zealand Treasury yesterday released the initial discussion paper on the possible changes to the depreciation rules.

        The discussion paper, Repairs and maintenance to the tax depreciation rules, addresses more than just Rental Property assets and looks at other industries as well.

        We will concentrate on what this means to you as property investors.

        Initial Comment
        This is a pretty good document from an investor’s perspective. This is nowhere as bad as perhaps the media had been making out. There will still be benefits for investors.

        We will be meeting with leading property professionals and various MP’s over the next week and we will make further comment shortly.

        Summary for Rental Properties
        The following is directly quoted from the discussion document and is a summary of what is included in the document for property investors.

        "There is some uncertainty as to the extent to which different parts of a building – such as the electrical wiring, plumbing and internal walls – can be split out and depreciated separately. This can lead to considerable variation in the tax liabilities of two different taxpayers with otherwise identical properties but who take different approaches to splitting out building components. This issue is of particular concern with respect to residential rental properties.

        We suggest allowing owners of residential rental property two options. The first, which would have higher compliance costs, would allow splitting out for a certain group of separately identifiable assets but would require structural components such as wiring, plumbing and internal walls to be depreciated as part of the building. The second would be to depreciate all building assets as part of the building, but allow greater scope to deduct replacements as repairs and maintenance".

        We have tried to include a variety of articles and viewpoints on property recently contained in the media. Please note that the articles are a summary of the main points and we endeavour to reflect these as accurately as possible. The contents do not constitute professional advice and should not be relied upon as such. We strongly recommend that you seek professional advice at all times. The information is in no way a reflection of views held by Valuit Asset Appraisals Ltd or its staff.
        "There's one way to find out if a man is honest-ask him. If he says 'yes,' you know he is a crook." Groucho Marx