Depreciation Allowances
Depreciation allows for the wear and tear on a fixed asset and must be deducted from your income.
Generally you must claim depreciation on fixed assets used in your business that have a lifespan of more than 12 months. However in special circumstances you can elect not to depreciate an asset by applying to the IRD.
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 the diminishing value and straight line methods of calculating depreciation.
Diminishing Value Depreciation
The amount of 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.
Straight Line Depreciation
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
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. You can change methods for any asset from year to year.
To view the depreciation rates and the methods for calculating depreciation, please refer to the IRD Depreciation Guide.
To calculate depreciation on a business asset please refer to the IRD Depreciation Rate Finder.
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