Depreciation: Govt to mitigate 'building' interpretation
The Government will introduce legislation to mitigate the impact on businesses of a possible change in the treatment of buildings and other structures for tax depreciation purposes, Revenue Minister Peter Dunne announced today.
"A draft interpretation of the law issued today by Inland Revenue's Public Rulings division generally broadens the category of 'building' in tax law to include some structures not previously treated as buildings, such as car-park buildings and agricultural and industrial structures," Mr Dunne said.
"At the same time, portable buildings would no longer be treated as buildings for tax depreciation purposes.
"If these boundary changes go ahead, they will have tax consequences for affected owners, since buildings generally have lower depreciation rates than other structures, do not qualify for losses when disposed of, and do not qualify for the 20% depreciation loading allowed to other assets.
"The draft interpretation has been issued for public comment. If it becomes the final interpretation, the Government will introduce a law change to ensure that the present tax treatment continues for existing buildings and structures so long as they remain in the same hands. New expenditure would not be covered.
"Once enacted, these transitional 'grand-parenting' provisions would apply from the date of this announcement.
"To demonstrate how all this would work, we could take the example of a barn that has not so far been treated as a building for tax purposes and has been depreciated at 12%. Under the draft interpretation, that barn would be treated as a building and its depreciation rate would drop to 8.5%, with no deduction for losses on disposal.
"Under the mitigation proposed by the Government, the barn's depreciation treatment would remain unchanged for the current owner, but would not apply to any improvements made to the barn after today.
"From the Government's perspective, it is sensible in this case to preserve investor certainty about how an asset will be treated for tax purposes," Mr Dunne said.
The draft interpretation is available at www.ird.govt.nz.
Contact: Ainslie Fenwick, Tax Advisor to Minister of Revenue 029 890 2452