Removal of Depreciation Rate Finder
Tax Alert - December 2021
By Veronica Harley & Melissa Parmar
Inland Revenue has recently removed its handy depreciation rate finder tool from its website for an upgrade, as part of their Business Transformation project. In the meantime, while a new tool is being developed (likely to be available sometime after March 2022), the rates of depreciation will need to be manually looked up using the IR 265, which is the published schedule of general depreciation rates. As a result, there may be more scope for errors when undertaking a manual process of choosing a rate. There is a correct process for determining the correct depreciation rate that applies to an asset – it is not a matter of choosing the highest rate that may “fit” an item if several might be relevant.
To find the depreciation rate, the taxpayer must firstly look at the asset class descriptions in the industry and asset categories in the Commissioner’s Table of Depreciation Rates. If there is an appropriate industry category for the taxpayer’s relevant industry and the asset is specifically listed, then the taxpayer must use that depreciation rate. If the item is listed in the industry category, there is no need to look at the asset categories.
However, if the asset is specifically listed in an industry category which is not the taxpayer’s main industry, then that depreciation rate is used only if the asset in question is used in a similar way to how it is used in the industry. Therefore, the nature of the item and how the item is used by the taxpayer will be a relevant consideration in determining the appropriate depreciation rate.
If the asset is not listed under an industry category, then the general asset categories should be looked at to find the applicable rate. If an applicable rate is not located from the asset categories, the default rate under the industry or asset category may be used. The rate adopted should be the one which is most appropriate in terms of how the asset is used.
If more than one asset class description fits an item of depreciable property i.e. where the description in a default rate asset class and the description in a more specific asset class describes the item, then the depreciation rate for the item in the more specific asset class is the applicable rate. The asset class description must be the description that most accurately describes the taxpayer’s item of depreciable property, so caution is advised in making these considerations.
An example of an asset that appears in both the industry and the asset categories are “sterilisers”.
Under the “Meat and fish processing (MEAT)” industry category, sterilisers are specified as an asset. Sterilisers are also specified in the “Medical and Medical Laboratory” industry category. However, sterilisers (where not used in a medical laboratory) are also specified in the asset category under “Scientific and Laboratory Equipment”.
It is important that the more specific industry class rate is used. Therefore, if the taxpayer is in the MEAT industry, then that rate should be used for sterilisers (13% DV) or if they are in the Medical and Medical Laboratory industry, that rate should be used for sterilisers (10% DV).
If they are not in the MEAT or Medical and Medical Laboratory industry but use the asset in a similar way to that of either industry, then the corresponding rate can also be used. If they are not part of either industry and do not use the asset in a similar way, then the rate under the Scientific and Laboratory Equipment asset category can then be used (10% DV). The specific industry and the use of the asset will determine the rate.
For the next few months at least, there will be no access to the depreciation rate tool finder. Going forward, it might be timely to conduct a review on depreciation rates or the process for selecting rates as part of a fixed asset review. It is also important to monitor newly issued depreciation determinations and whether there are any assets which require new rates to be applied. If you would like any further information, please contact your usual Deloitte advisor.
December 2021 Tax Alerts
- COVID-19: Some business support gets a red light
- Removal of Depreciation Rate Finder
- Clough v Commissioner of Taxation: A Lesson in Poor Execution
- Physical or virtual Christmas celebrations: what employers need to remember
- Extreme tax powers could be used for almost anything
- Will Technical Decision Summaries help with Inland Revenue decision making transparency?
- The false economy of working quickly
- Snapshot of recent developments