A Week In Review- Gilligan Sheppard

Building depreciation
If you’ve been in the game as long as I have (and therefore have as much grey hair as I do from dealing with the various tax changes made by the Government of the day), you would have experienced the myriad of changes over the years with building depreciation.

There was a time when depreciation could be claimed on both residential and non-residential buildings, then from the 2012 income year, rates were reduced to 0%, and then due to the Covid pandemic, from the 2021 income year you could commence claims for non-residential buildings again.

With all these changes in play, the recently released draft interpretation statement by Inland Revenue (IR) titled ‘Claiming depreciation on buildings’ is certainly a useful read.

The reference is PUB00395, and the document commences with a brief discussion on the meaning of depreciable property and making elections not to depreciate (a topic covered itself recently by QB 21/11), before jumping into the more meaty topics of exactly what is considered to be a non-residential building (one that is not a residential building going by the s.YA 1 definition), and due to the bracketed definition, what is considered to be a residential building.

There is also some talk around what is considered to be part of the building proper and what are potentially separate assets like plant (with their own depreciation rates), how to calculate ATV (average transaction value) at the commencement of the 2021 income year (particularly if you’ve been claiming a commercial fit-out pool), and what are the implications of having a dwelling located inside your non-residential building.

The commentary contains ten examples to help explain some of the key concepts.

One key lesson/reminder coming out of PUB00395, is for those of you with clients who have short-stay accommodation facilities and may think they should be able to treat the structures as non-residential buildings due to the more commercial flavour of the activities (and that these supplies are often considered taxable supplies for GST purposes), they won’t qualify for depreciation deductions unless there is four or more separate accommodation units on the single title. If there are less than four separate units, the building will be deemed to be a residential building with a 0% depreciation rate.

If you’d like to have your say on PUB00395, the closing date for submissions is 2nd May 2022.

Read more here

Contributing Advisors