Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life. (NZ IAS 16.6)

Depreciation allows for the wear and tear on a fixed asset and must be deducted from your income. You must claim depreciation on fixed assets used in your business that have a useful lifespan of more than 12 months.

Not all your fixed assets (e.g., land, buildings) can be depreciated.

If you are registered for GST, the cost excludes any GST you have already claimed in your GST return.

Diminishing value depreciation:

  • Depreciation is calculated on the adjusted tax value of the asset.
  • This value is the original cost less any depreciation already claimed in previous years.

Straight line depreciation:

  • Depreciation is calculated on the original cost price of the asset, and the same amount is claimed each year.

Low-value assets, that is, assets that cost $500 or less (including loose tools), are deductible in the year they are acquired or created.

If you need help in understanding this or any other tax topic, and how it relates to your business please contact us.