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IRD's views on depreciation challengedTuesday 19 January 2010 The Inland Revenue is sticking with its controversial views on depreciation of residential rental property - but not winning a lot of support. In an Exposure Draft released late last year the department argued "that the breaking down of a residential rental property into such separate items is not an approach that can be universally applied." It first raised this view in 2007 and provoked a strong, negative reaction from investors and their professional advisers. Institute of Chartered Accountants Tax Director Craig Macalister says the issue is still a mess and the department is "stubbornly" sticking to its view that investors should not be allowed to split out parts of a building for depreciation purposes. The institute has a view that IRD's legal analysis of the situation is a little wanting and "ain't that strong." He says a lot of the case law IRD relies on is based on earlier decisions relating to repairs and maintenance. "We struggle with whether they are relevant or not." John Lowthers, a director of chartered accountancy firm Lowthers Auckland, says in his submission to the department that the law "as it stands is clear and practical". If you can separately identify an item of depreciable property, then a depreciation loss is allowed and that loss is calculated in accordance with the formula set out in the law. Macalister says depreciation is a significant issue and one that has been "the most emotionally charged issue" for the institute's members. The issue is also causing problems for investors. Since the department's earlier statement in 2007 some investors have changed their approach and not separately depreciated different parts of a building. He says there is a "reasonably arguable position" that investors can continue with the approach to depreciate parts of a building at different rates. A positive aspect of the latest Exposure Draft is that it has a proposed three step test landlords can use to work out their depreciation calculations. IRD says it has had 11 submissions on last year's Exposure Draft.
Comments from our readersOn 20 January 2010 at 9:13 am Mark, Napier said:
The issue is complex, but needs to be sorted. Too many people have gone to absurd extremes when their logic is as sustainable as saying "I can depreciate 95% of the cost of my BMW at the 60% p.a. rate for computers because without the car's electronics, it wouldn't start". Add your comment:Buyers cautious as activity remains subdued House prices extended their decline for a fifth month as a backlog of unsold property sits on the market. Review may give investors some depreciation relief Commercial and industrial property investors should still be able to claim significant depreciation allowances, an asset depreciation expert says. Economist pushes out dates for next OCR hikes One economist has pushed out the date for the Reserve Bank’s next official cash rate hike citing recent downgrades to its forecasts for global GDP growth, including in Australia and New Zealand. |
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