Tax Updates: 9 December 2024

Welcome to this week’s review of tax issues where Richard comments on what’s been happening in the world of tax over the past week. If you have a question or would like a second opinion on any national or international tax issues, please contact Richard via email at richard@gilshep.co.nz.

TDS – a useful read

A timely reminder, I think, regarding Inland Revenue’s (IR) technical decision summaries (TDS), which reflect determinations issued by the so-called “independent” unit of the Revenue (Tax Council Office or TCO). Usually, having the role of casting a new set of eyes over any tax dispute between the taxpayer and the Commissioner just prior to heading off to the courtroom, although, as we saw by their latest release, they also, on occasion, issue a ruling which has been sought by the taxpayer.

In this respect, TDS 24/23 was a private ruling sought by the taxpayer regarding the entitlement to claim a depreciation loss on an asset no longer used in accordance with section EE 39 of the Income Tax Act 2007 (ITA07).

The taxpayer was a company that, due to a change in the direction of the business, had no further use for a particular asset, with an independent report the company had obtained, suggesting that the cost to dispose of the asset would exceed any scrap value consideration that could be derived from the asset’s disposal.

TCO methodically worked through the relevant provisions of the Act, determining at first instance that the general permission was satisfied (depreciation loss was incurred in the course of the company’s business) and that the capital limitation did not apply here – even though the item of property itself was of a capital nature.

Section EE 39 then contains five criteria that the taxpayer must satisfy, the last of those being that the cost of disposing of the asset would be more than any consideration the taxpayer could get from disposing of it. In this regard, due to the independent report obtained by the company, and that due to the unique nature of the asset, there was an absence of buyers and a lack of a market or opportunities for sale, TCO considered that the company had met the statutory test, and consequently was entitled to claim a deduction for the remaining adjusted tax value of the asset.

One thing I like about the TDS publications is that they are usually only 6-8 pages long, so they are not an overly taxing read (yes, the pun was intended) when you have a spare 5-10 minutes in your day. Happy reading!

This article was originally published through the ‘A Week In Review’ newsletter. If you would like to receive Richard’s tax updates every Monday morning, you can subscribe here.