Depreciation on building

[Beano]

I have heard depreciation on commercial buildings is back again!
Great news ... looking forward to the details.
I use to get $175k depreciation in the old days.... double bonus perhaps with another decrease in interest rate.

[Anthonyacat]

Correct! I am looking forward to details also. The following was provided as part of communication to Tax Agents yesterday:


The Government has also announced it will introduce legislation for four more taxchanges to help businesses given the impact of COVID-19. They are:
➢ to increase the provisional tax threshold from $2,500 to $5,000
➢ to increase the small asset depreciation threshold from $500 to $1,000 – andto $5,000 for the 2020/21 tax year
➢ to allow depreciation on commercial and industrial buildings.
➢ Removing the hours test from the In-Work Tax Credit from 1 July 2020

These four changes are not proposed to be timebound, would start from the 2020/21 taxyear, and apply to all businesses - not just those affected by COVID-19. You can find outmore about them at https://www.ird.govt.nz/covid19


All of the above are great news - though the In-Work Tax Credit is a weird one they just seem to be slipping in there. And don't bother following that link at the end, I couldn't find anything of relevance therein.

I'll be very interested to see the details of what is considered Commercial/Industrial. Will we be able to depreciate residential buildings if they're operated on an AirBnB-type basis?

[Beano]

Correct! I am looking forward to details also. The following was provided as part of communication to Tax Agents yesterday:


The Government has also announced it will introduce legislation for four more taxchanges to help businesses given the impact of COVID-19. They are:
➢ to increase the provisional tax threshold from $2,500 to $5,000
➢ to increase the small asset depreciation threshold from $500 to $1,000 – andto $5,000 for the 2020/21 tax year
➢ to allow depreciation on commercial and industrial buildings.
➢ Removing the hours test from the In-Work Tax Credit from 1 July 2020

These four changes are not proposed to be timebound, would start from the 2020/21 taxyear, and apply to all businesses - not just those affected by COVID-19. You can find outmore about them at https://www.ird.govt.nz/covid19


All of the above are great news - though the In-Work Tax Credit is a weird one they just seem to be slipping in there. And don't bother following that link at the end, I couldn't find anything of relevance therein.

I'll be very interested to see the details of what is considered Commercial/Industrial. Will we be able to depreciate residential buildings if they're operated on an AirBnB-type basis?

Do you charge GST on airBnB leasings ?
I assume retail will be treated as commercial.
It will also be good to depreciate earthquake strengthening.
It would be unfair not to charge GST on airBnB as hotels do have to charge GST.

[Anthonyacat]

Do you charge GST on airBnB leasings ?
I assume retail will be treated as commercial.
It will also be good to depreciate earthquake strengthening.

Yes - AirBnB listings are just like a hotel or motel activity; GST is payable on income (and claimable on costs, including building purchase) if the gross income is over the registration threshold.

I don't fully understand why they specified commercial/industrial. Industrial is by definition a subset of commercial.

[Beano]

Yes - AirBnB listings are just like a hotel or motel activity; GST is payable on income (and claimable on costs, including building purchase) if the gross income is over the registration threshold.

I don't fully understand why they specified commercial/industrial. Industrial is by definition a subset of commercial.

Yes it is but I do know many consider commercial as office
I also treat commercial as
Office
Industrial
Car parking
Retail
Hotels/motels

[learner]

It's good news that depreciation can now be claimed again on commercial and industrial buildings from April 2020. However, I cannot find on the IRD website on how to calculate the value of the asset to be depreciated.

For example, the value of the building in 2011/12 was depreciated to, say, $1m for tax purposes. In 2020/21 would the depreciation take the last depreciated figure, $1m, as the value to depreciate 2% on?

Or, would the figure be $820,000 ($1m less 2% imputed depreciation for the 9 years since 2011/12)?

Similarly, if improvements to the building of say, $200,000, were made in 2019/20 year, would the value to be depreciated be:

(a) $1,200,000 (the $1m from 2011/12 plus the $200,000), or
(b) $1,016,000 (the $820,000 obtained above), plus $196,000 (the $200,000 with an imputed 2% depreciation for 1 year)

Perhaps some guidance would be provided by the IRD in the future.

[Anthonyacat]

My guess (nothing to go on, but probably right) is that it's the book value in the accounts. No messing around with imputed depreciation. The view of the government (and thus, the IRD) is that these buildings have not gone down in value since 2011/12 when the rate moved to 0%.

[learner]

Thank you, Anthonyacat.

So, there is no set accounting policy on how suspended depreciated assets can be depreciated again?

[Anthonyacat]

There has been no suspension of depreciation. This whole time we have continued to depreciate buildings - just at 0%.

When that rate changes, it'll *probably* change for the 2020/21 year forward, I seriously doubt they'll change it for years 12-19.

[Davo36]

Yeah good news for those of us with commercial/industrial properties.

Has a depreciation rate not been set yet?

[learner]

Hello Davo36

It is 2% DV from this link https://www.beehive.govt.nz/sites/de...0factsheet.pdf

It says that it is a PERMANENT change (until the next time it is taken away, much like the Lifetime Driver's licences).

[Davo36]

Hello Davo36

It is 2% DV from this link https://www.beehive.govt.nz/sites/de...0factsheet.pdf

It says that it is a PERMANENT change (until the next time it is taken away, much like the Lifetime Driver's licences).

Yes, promises, promises.

[Don't believe the Hype]

I'm confused ... depreciation was removed because the brains trust on the red team in Wellington said it wasn't real, arguing that buildings actually don't deteriorate and need replacement they actually go up in value... forever ... always...

Now they're bringing it back because it is real?

[PC]

It's just not not real on residential houses. That's why landlords don't need to do any maintenance any more.