It pays to get the depreciation right
olliers International property experts are expecting a flurry of activity in the commercial property market following next weekend’s general election.
Auckland managing director Charles Cooper says the last few months of the year are always the agency’s busiest for property sales and leasing transactions.
He says the usual increase in activity is likely to be bolstered by the election.
“A number of our vendors have held off launching new property marketing campaigns until after the election, so expect a flood of new listings over the coming few weeks,” he says.
“We anticipate a strong finish to the year, with increased sales volumes over October, November and December.”
Cooper says the election i s unlikely to have an impact on the underlying strength of New Zealand’s commercial property market, regardless of the outcome.
“Market analysts expect interest rates to remain low until at least 2019 — well after the current election cycle.
“The ongoing low interest rate environment will continue to fuel investment in commercial property.”
Cooper says Colliers International’s key clients are continuing to hire, which shows they remain confident in the market’s fundamentals and the strength of the broader economy.
Colliers International also remains upbeat, he says.
“We are continuing to hire and right now we’re looking to grow our Auckland business. We have 30 roles across all 20 of our business lines.”
Gareth Fraser, Colliers International’s Auckland Investment sales director, says New Zealand’s political stability makes it attractive to the global investment community, and the election won’t change that.
“Overseas investment activity has remained strong in the lead- up to the election,” he says.
“Of the eight transactions over $ 40 million we’ve brokered so far this year, seven of the buyers were from offshore.” Tax can be a complicated subject. Tax related to commercial property even more so. But claiming the correct level of tax depreciation on assets has become an essential tool for the viable economic future of any business.
Assessing the value of a commercial property and the individual assets contained within it can be challenging. Here is what you need to know:
Because fixed assets generally last longer than a year, you can't claim their cost as a business expense all at once. However, as they wear out, you may be able to claim a percentage of their cost each year as a tax deduction. The percentage amount of depreciation annually you are able to claim has to be in line with the docu- ment known as IR265 issued by the New Zealand Inland Revenue Department ( IRD).
Depreciation allows a deduction for capital expenditure, where a deduction wouldn't normally apply and acknowledges the asset will eventually wear out or become outdated.
For tax purposes, the reduced value of an asset i s recognised by allowing a deduction against income for the depreciation of that asset from the time it is used in a business until it is sold, disposed of or discarded.
This means the cost of the asset will be written off over its useful life. Once the whole cost price of the asset has been written off, no further deduction is allowed. Asset purchase price analysis ( APPA) uses appropriate and robust valuation methodologies to analyse, then allocate a total asset purchase price to its individual components. The allocation process allows the identification and segregation of the individual components into their appropriate tax categories as prescribed by the IRD. This ensures all taxpayers claim the correct and optimum level of taxation depreciation for individual assets during the period of ownership. Usually subsequent to an APPA review the taxpayer’s overall depreciation claim is increased while maintaining compliance with current IRD guidelines.
Generally, APPA can be utilised where fixed asset categories may have been involved in a business trans- action ( where assets have changed ownership), as follows: Building structures; Building fitout services, including lifts, air- conditioning and floor coverings;
Processing, manufacturing and engineering plants;
Restaurant, catering and administration equipment;
Hospital, rest home and clinical care facilities;
Hotel, motel and retail outlet chattels.
Where a purchaser pays one total price for a collection of assets, the IRD considers this one transaction. It may contain various components in respect of the assets purchased, either nominated as one amount or in some detail within the sales and purchase agreement. Each overall transaction therefore must be fully analysed so that all of the component parts are allocated realistic individual purchase prices based on the total transaction and price paid.
Fractional analysis of only specific parts of the transaction is not acceptable to the IRD.
Therefore, all assets that form part of a business transaction must be individually reviewed and analysed before final purchase prices can be effectively allocated.
Charles Cooper