By Hayes Knight – 6 August 2009

The IRD has issued a draft interpretation statement for public comment, which proposes broadening the meaning of ‘building’ in the depreciation provisions to include some structures not previously treated as buildings, such as agricultural structures and industrial structures.

The application of this draft interpretation would result in a less favorable tax treatment in some cases, since buildings generally have lower depreciation rates than other structures, do not qualify for the 20% depreciation loading allowed to other assets and do not qualify for losses when disposed of.

If the draft interpretation is finalised in its current form, the Government will enact new legislation. This will ensure that the present tax treatment in relation to the interpretation of buildings continues for existing buildings and structures, provided they remain in the same hands. New expenditure would not be covered.

The new legislation enacted by the Government will operate as follows. For instance in the case of a fowl house that was not previously treated as a building for tax purposes and has been depreciated at 12%. Under the draft interpretation, the fowl house would be treated as a building and its depreciation rate would drop to 8.5%, with no deduction for losses on disposal.

Under the new legislation proposed by the Government, the fowl house’s depreciation treatment would remain unchanged at 12% for the current owner, but 12% depreciation rate would not apply to any improvements made to the barn.

The deadline for public comment on the draft interpretation statement is 11 September 2009.  Comments can be submitted to the Inland Revenue at public.consultation@ird.govt.nz
Please quote reference INS0096

Should you have any queries do not hesitate to contact your Hayes Knight advisor.