What is Depreciation & How Does it Work?

23 July 2017

As a business owner or property investor you’re entitled to make a tax claim for depreciation – but what exactly is depreciation?

It’s best described as the devaluation of your assets over a number of years and different assets have different life spans so that’s why the depreciation rates differ.

An asset is defined as an item costing over $500 which will be used on an ongoing basis to help generate taxable income. Examples are plant & machinery, computers, chattels (stoves, carpet), vehicles etc.

From the month that you purchase the asset you can claim a percentage of it (based on IRD’s depreciation rates) as a tax deductible expense which can be offset against your income (just like all other business costs).

So you don’t get to claim the whole cost at once, it’s spread out over a number of years.

Each year it’s worth reviewing your asset register to see if anything has broken, not able to be used anymore and we can then write this off fully giving you a tax claim on any residual balance.

As always if you’re not sure of anything please do contact us, we enjoy chatting with you