What is Depreciation and how does it work?

Depreciation refers to the devaluation of assets over its useful life. Different types of assets have different life spans, meaning their depreciation rates are also different. Business owners or property investors are entitled to make a tax claim for depreciation.

An Asset refers to an item costing $500 or more that has a potential economic benefit. Examples of assets include plant and machinery, computer equipment, vehicles, and chattels.

Business owners can claim a percentage of the asset purchased as a tax deductible expense based on IRD’s depreciation rates. This can be done from the month that the asset is purchased, and it will offset income. The claim needs to be made over a number of years.

It is best that assets are reviewed annually to see if it needs repairing or disposing so it can be written off to receive a tax claim on any residual balance.