1. What is Depreciation?

Depreciation is the reduction in value of an asset over time due to wear and tear, obsolescence, or age. In New Zealand, depreciation can be claimed as a tax deduction for income-producing assets.

2. Depreciation Methods in NZ

The two main methods for calculating depreciation in New Zealand:

Where:

• \( \text{Cost} \) — Original purchase price of the asset (NZD)
• \( \text{Depreciation Rate} \) — Percentage rate set by IRD
• \( \text{Useful Life} \) — Estimated lifespan of the asset in years

Explanation: The diminishing value method applies the depreciation rate to the remaining balance each year, while straight line applies the same amount each year.

3. Importance of Depreciation Calculation

Details: Accurate depreciation calculation is crucial for tax purposes, financial reporting, and understanding the true cost of asset ownership over time.

4. Using the Calculator

Tips: Enter the asset cost in NZD, the applicable depreciation rate (check IRD guidelines), and select your preferred calculation method. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What assets can be depreciated in NZ?
A: Most income-producing assets with a useful life of more than 12 months, including buildings, vehicles, equipment, and furniture.

Q2: Where can I find IRD depreciation rates?
A: IRD publishes a list of depreciation rates for different asset classes in their Determination DEP-1.

Q3: Can I change depreciation methods?
A: In NZ, you generally need to stick with your chosen method for the asset's life, though some exceptions apply.

Q4: What's the difference between book and tax depreciation?
A: Book depreciation follows accounting standards, while tax depreciation follows IRD rules which may differ.

Q5: How does depreciation affect my taxes?
A: Depreciation reduces your taxable income, potentially lowering your tax liability.