Depreciation: How it Impacts Business and New Zealand Politics in 2023

As the 2023 elections loom large on New Zealand’s horizon, political parties are stirring the pot with proposals. Among the hot topics getting the spotlight is depreciation. But what on earth is it, and why should it be on your radar?

Let’s break it down in simpler terms with some real-world examples.

Picture this: You’re the proud owner of a snazzy commercial building, renting it out to businesses across town. The moolah you rake in from these rentals is pretty much your business’s bread and butter. Just like any Kiwi business, you’ve got your hands full with expenses like upkeep, admin costs, and even interest on those loans that helped you snag the building in the first place.

Depreciation: The Unsung Hero

Now, let’s get to the juicy bit, depreciation. This is the gradual decrease in your building’s value over time. It happens thanks to the wear and tear that comes with age & in particular use. Depreciation steps in and lets you spread the cost of your building over its useful life for tax purposes.

In simpler terms, it’s like acknowledging that your beloved building is slowly losing its shine. Since you can’t simply claim the entire purchase price of an asset from your taxes right out the gate, you sprinkle that deduction over several years, making it rain tax savings through depreciation expenses.

Depreciation in Action

In New Zealand, if a purchase costs less than a grand, you’re in luck!  You can claim it as a 100% tax-deductible expense in the year you purchased it. But for assets on the spendier side, like computers or plant equipment, you spread the love over its years of life with depreciation.

The Politics of Depreciation

Now, here’s where the plot thickens. Commercial landlords and their accountants have had a rough ride in the last couple of years with depreciation tax changes. For the current, commercial landlords have been able to sweeten the deal by claiming depreciation on their buildings, effectively trimming their taxable profits. But now there’s talk of doing away with this tax benefit.

As for rental properties like homes, the depreciation claim train has pretty much left the station. Residential landlords can’t simply slide the value of their building into their tax claims anymore.

A Closing Note: Depreciation Decoded

An important note; when you claim depreciation it lowers the value of your financial position.  If you eventually sell that asset for more than it’s worth on book value, you need to consider “depreciation recovery” & you might just find yourself dealing with “gain on sale of an asset” more to pay on your next tax bill.

Understanding depreciation is crucial for businesses as it can significantly impact their tax liabilities. It’s a financial tool that, when used wisely, can help save money.

As the political landscape shifts, these considerations become even more critical, highlighting the complex relationship between finances and politics in New Zealand.

If you have questions or need expert guidance on navigating the world of depreciation and taxes, don’t hesitate to reach out to us. We’re here to help!