12 July 2004

Tax depreciation issues paper released

Revenue Minister Michael Cullen today welcomed the publication of an issues paper inviting consultation on how to improve the tax rules on depreciation of assets.

“I am concerned that the current economic depreciation rates may not accurately reflect the reality of economic life in a time of rapidly advancing technology. If they do not, they may have a disincentive effect on the level of capital investment and may be biased in favour of long-term investments such as rental housing and against short-term investments such as high tech machinery.

“It is important to ensure, as far as possible, that investment decisions are not made for tax purposes,” Dr Cullen said.

The paper is the first step in the policy making process. It suggests ways of reducing possible tax biases and resolving practical problems with the application of the rules.

Officials will draw up recommendations based on the feedback received.

The closing date for submissions on the smaller technical issues that could be included in the taxation bill planned for November is 31 August.

The closing date for submissions on the larger issues, which readers may need more time to consider, is 30 September. These issues include: methods of calculating depreciation for plant, equipment and buildings; depreciation loadings; and the extent to which owners of rental property should be able to separate out structural components of a building and depreciate them at separate rates.

ENDS

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