Depreciation spreads the cost of assets
Depreciation is a method of spreading the cost of big assets over time. This is for your business, or your work as a sole trader or contractor.
You can claim a deduction for Inland Revenue-approved depreciation rates in your income tax return.
It's like claiming expenses – but instead of claiming the total cost of the item, you claim the amount it depreciates each year.
Assets that do and don’t depreciate
For tax purposes, you must claim depreciation on assets that:
- are owned by you or your business and are available for business use
- cost more than $1,000
- have an expected life of more than 12 months.
You can’t claim a deduction for depreciation of:
- assets you’ve selected as not depreciable with Inland Revenue
- trading stock
- land (except for certain fixtures or land improvements)
- residential buildings
- most intangible assets
- low-value assets (less than $1,000)
- assets where the costs are already deducted under another tax provision
- assets that don’t decline in economic value because of compensation for loss or damage
- asset types where the initial cost is or was already deductible.
Calculate depreciation annually
Depreciation is calculated annually over the useful life of the asset as part of your end-of-year accounts. To calculate this, you need to know:
- the asset’s value
- your depreciation method
- the approved Inland Revenue depreciation rate.
The asset’s value
This is either:
- the cost paid for the asset at the time you acquire it
- the market value of the asset at the time you start using it for your business.
Each year, depreciation is deducted from the value of your asset. The remaining value is called the adjusted tax value.
If you’re GST registered, use the GST-exclusive price of the asset to calculate depreciation, and you can claim a credit for the GST portion of its price.
If you aren’t GST registered, base your depreciation on the GST-inclusive price.
Depreciation method
Choose one of these methods:
- Diminishing value: depreciation is calculated as a constant percentage of the asset’s adjusted tax value. Your depreciation deduction reduces each year.
- Straight line: your asset depreciates every year by the same amount – a percentage of its original cost price.
You don’t have to use the same method for all your assets, but you must use the same method on an asset throughout the financial year.
Tax depreciation rate
Inland Revenue sets depreciation rates based on the cost and useful life of an asset.
To calculate an asset's adjusted tax value and the amount of depreciation to claim, multiply its cost by the depreciation rate.
Investment Boost
From 22 May 2025, you can immediately deduct 20% of the cost of certain new assets, then claim depreciation as usual on the remaining 80%.
Record depreciation
Keep a record of:
- your fixed assets, including proof of purchase and sale
- the depreciation claimed
- the adjusted tax value of each asset (cost minus depreciation).
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