Depreciation is a method of accounting for the cost of wear and tear on assets you buy for your business. You can claim a deduction for the wear and tear of these assets at Inland Revenue-approved depreciation rates in your income tax return, as this is treated as a business expense.
You must depreciate assets that:
- Are owned by you or your business and are available for business use
- Cost more than $1,000
- Have an expected life of more than 12 months
How to calculate
Depreciation is calculated annually over the estimated useful life of the asset as part of your end-of-year accounts. You need to know the assets value which is generally the market value of the asset of the time you acquire it or start using it for your business. If you’re GST registered, use the GST-exclusive price of the asset to calculate depreciation. If you aren’t GST registered, base your depreciation on the GST-inclusive price.
Next you need to choose your depreciation method:
Diminishing value: depreciation is calculated as a constant percentage of the asset’s adjusted tax value. Your depreciation deduction reduces each year.
Straight line: your asset depreciates every year by the same amount — a percentage of its original cost price.
Inland Revenue sets tax depreciation rates based on the cost and useful life of an asset, you can find the rates here.
Make sure you keep accurate deprecation records for seven years, as this is a legal requirement.
