Depreciation - What do you need to know?

Most assets lose value over time as they get older. This is known as depreciation. Businesses can claim depreciation loss as a deductible expense each tax year.

You can claim a deduction for depreciation loss on capital assets. You can do this for those you own, lease (under certain types of leases), or buy under a hire purchase agreement and use, or intend to use, in your business. Assets are depreciated at different rates. Inland Revenue set depreciation rates based on the cost and useful life of assets.

If you rent out short-stay accommodation, you can claim deductions for depreciation on chattels being used to earn income. But you can only claim the proportion relating to when the chattels were used to earn income.

Depreciation can also be calculated on fit-out, where the building is commercial and not residential.

Most farm buildings do not appreciate in value. Farm buildings are more likely to depreciate in value over commercial and residential buildings.

The rules on depreciation have changed several times in the last decade. Special rules were made for farming businesses. 

The Government introduced further changes to depreciation as part of its COVID-19 tax relief measures.

As always, for specific advice, be sure to contact us.

Download the guide to Depreciation