What are the current rules for claiming depreciation on depreciating assets used in a New Zealand business?

Depreciation allows businesses to claim a deduction for the decline in value of assets used to generate income over their effective life. The rules for claiming depreciation on depreciating assets in New Zealand have undergone recent changes, particularly regarding immediate expensing and the low-value pool.

### Depreciation Methods

Businesses generally use one of two methods for calculating depreciation:

• Diminishing Value (DV) Method: This method allows a larger deduction in the early years of an asset's life and smaller deductions in later years. The rate is applied to the asset's book value.
• Straight Line (SL) Method: This method claims an equal deduction amount each year over the asset's effective life.

### Low-Value Pool (LVP)

Assets costing less than a specified threshold can be added to a Low-Value Pool (LVP). Instead of depreciating them individually, the entire pool balance is depreciated using a set rate (usually 18% DV or 12% SL). Assets generally enter the LVP if their cost is below USD 1,000 (this threshold may change, so checking current IRD rates is essential).

### Temporary Full Expensing (Recent Changes)

Historically, New Zealand has implemented temporary measures to encourage investment. For example, the Temporary Full Expensing (TFE) measure, introduced during certain periods, allowed businesses to immediately deduct the full cost of eligible new depreciating assets in the year they were purchased, rather than depreciating them over time. It is crucial to check the current tax year legislation, as TFE rules are often temporary and subject to sunset clauses.

### Asset Thresholds and Write-Offs

Assets costing below a certain low-value threshold (often USD 1,000, but check current legislation) can often be immediately deducted as a 'low-value asset' rather than being depreciated, provided they are not added to the LVP.

### Key Requirements

• The asset must be used to derive income.
• The asset must have a limited effective life.
• The taxpayer must own the asset.

If you claim depreciation, you must maintain a fixed asset register detailing the cost, depreciation method, rate, and opening/closing book values for each asset.