Depreciation recovery

Question from Denis updated on 10th May 2013:

A few months back we sold a rental property that we had owned for 15 years. The depreciation claimed over that time was $74,165. When would the IRD expect us to tax back the depreciation recovered? At the moment we don't have enough information from all our income sources to make a completely accurate tax assessment but believe we may potentially owe $24,000. Should I make a provisional payment now to avoid penalty tax?

Our expert Mark Withers responded:

Sounds like the property has been sold in the 2013 income tax year and is owned in a partnership. If you use a tax agent the terminal tax due will be on 7 April 2014 which is a week after the final return filing deadline. If you don't use an agent the due date is 7 February 2014. As individuals, you will be in use of money teritory only if your personal residual income tax bill is in excess of $50,000. This means there is probably nothing to be gained by paying the tax sooner than the terminal tax due date. Because the 2013 tax bill is over $2,500 each you will be provisional taxpayers for 2014 though. Given the depreciation recovery was presumably a one-off taxing event you will most likely want to make an estimate of your 2014 income so that you pay provisional tax based on the estimate rather than the standard option that would be based on the assumption the same income may eventualte again in 2014. The estimate can be monitored throughout the 2014 year and amended as your income becomes more certain.

Mark Withers and his team at Withers Tsang & Co specialise in advising on property related transactions, valuation and restructure services and tax planning.

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