Depreciation

Depreciation allows for the wear and tear on a fixed asset and must be deducted from your business income.

You must claim depreciation on fixed assets used in your business that have a useful lifespan of more than 12 months. Not all fixed assets can be depreciated. Land is a common example of a fixed asset that cannot be depreciated.

You will have to keep a fixed asset register to show assets you will be depreciating. This should show the depreciation claimed and adjusted tax value of each asset. The adjusted tax value is the asset’s cost price, less all depreciation calculated since purchase.

In most circumstances you can choose between straight line and diminishing value methods of calculating depreciation.

You do not have to use the same depreciation method for all your assets, but you must use whatever method you choose for an asset for the full year. The method used for an asset can be changed from year to year.

Straight Line Method: Depreciation is calculated on the original cost price of the asset, and the same amount is claimed each year. If you are registered for GST, the cost excludes any GST you have already claimed in your GST return

Diminishing Value Method: Depreciation is worked out on the adjusted tax value of the asset. This value is the original cost less any depreciation already claimed in previous years. If you are registered for GST the original cost price should not include GST you have already claimed in your GST return.

Depreciation Rates: The table below shows the depreciation rates for certain commonly used assets. New assets acquired in 2006 and future years can be depreciated at these rates plus a 20% loading. Use the IRD’s depreciation rate finder for a quick way to find the rate for assets in the 2005 income year or earlier.