A significant change this year is depreciation can no longer be claimed on most buildings. Currently depreciation on buildings is treated as a loss of value and is used to offset income generated. This change has been made as it is rare for a building to decrease in value yet tax payers could effectively devalue buildings to reduce tax. For people or businesses with buildings who are currently claiming depreciation and may be receiving tax refunds this could now result in having tax to pay. If paying tax already and claiming depreciation then income tax may increase.

A brief description from Inland Revenue's Business Tax Update 16 February 2011

Depreciation deductions will no longer be allowed for buildings with an estimated useful life of 50 years or more, such as rental houses and offices. At the same time, new rules ensure the fit-out of commercial and industrial buildings will continue to be depreciable. These rules will change for all such buildings from the 2011-12 income year. For most businesses this will be effective from 1 April 2011.

Note the above also applies to residential building chattels too. We'll be in touch with clients in the near future with details of how this will affect them and instructions on what to do for annual accounting and income tax time. An important step is to list and value all chattels as these are still claimable for depreciation if not done already. Additionally it may be a good idea to budget for an increase of tax / reduction of tax refund amounts.

Please remember if you have any questions about this or anything else just ask. We're always happy to help!

Posted 8/02/2011

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