The type and the value of some business assets will have more of an impact on reducing your terminal and provisional tax bills than others.
Some tax tips live on beyond their use by date. When you buy a fixed asset like plant and equipment or a vehicle worth more than $1,000 that has a useful life of more than 1 year it is not an expense it is an asset. However over the period of time the business owns the fixed asset you get to claim the assumed loss in value as an expense in the way of depreciation. eg the IRD straight line (SL) depreciation rate for a car is 21% pa or 30% pa diminishing value(DV). Straight line depreciation you write the car off over 5 years with 21% of the cost price being depreciation claimed each year. Diminishing value you claim more up front and less and less each year because it is 30% on the book value each year not the cost price. Before 2006 if you owned a fixed asset for 1 day of the financial year you could claim 6 months depreciation and if you owned it for 6 months and 1 day you could claim 12 months depreciation. This did encourage some business owners to buy fixed assets around the end of a financial year, we still see some marketing campaigns using this as a way to promote some urgency in buying their products. However since 2006 the depreciation is calculated on a monthly basis so if you own an asset for 1 day of the financial year you only get to claim 1 months depreciation. If you are certain you need to acquire or upgrade a fixed asset that will make you more money buy it when you need it, don’t let tax savings drive that decision as the immediate tax savings may be minimal. Fixed assets that cost less than $1,000 can be expended straight away so any required fixed assets in that category purchased before the year end will reduce your tax bill more significantly. Fixed assets also have different depreciation rates so some will provide more immediate tax deductions eg Computer Equipment is 50% (DV), Furniture is only 10% (DV) and Land is 0%.
You can check out the different depreciation rates on the IRD website.
Often with vehicles a business is trading in an existing vehicle for a new vehicle so there are some things to be aware of when you are negotiating the deal. Next weeks # TAXtip # 5 Selling Assets & Trade ins will go over the implications of trade in values, depreciation recovered or loss on disposal and how this will effect your tax bill.
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