Inland Revenue released a 51-page interpretation statement in July that while appears logical enough, includes a surprising statement.
In light of the re-introduction of depreciation on non-residential buildings from the 2021 income year, the
22/04 – Claiming depreciation on buildings interpretation statement is intended to give guidance to building owners on when they can claim depreciation on buildings. Specifically, the statement emphasises the importance of understanding the difference between a residential building – where the depreciation rate remains at zero percent – and non-residential buildings.
The basis of the interpretation statement appears logical enough, however, it includes the following surprising statement:
“where a building is used for both residential and non-residential purposes, it will only have a depreciation rate of greater than 0% if it is predominantly or mainly used for non-residential purposes: it is effectively an all-or-nothing test”
This is relevant, for example, where a building that has retail shops on the ground floor and residential apartments on the first floor, or in a rest-home context where there may be independent living apartments within a building that also provides hospital or assisted care.
The statement provides that the “predominant use” of the building must be established to determine whether the applicable depreciation rate for the entire building is more than zero percent. This suggests (but not specifically commented on) that the owner of a unit titled residential apartment in a predominantly commercial building, is able to depreciate it at the commercial building rate.
Building owners who own all, or part of a mixed-use building should read the interpretation statement carefully to determine their depreciation obligations.
Let us help you get this right. Give us a call.