# NZ IRD Depreciation Rates for Construction/Builder Assets

Reference guide for depreciating business assets commonly purchased by builders,
contractors, and tradespeople in New Zealand. Based on IRD IR265 (August 2024)
and the Income Tax Act 2007 Subpart EE.

---

## 1. Depreciation Methods

New Zealand allows two depreciation methods for fixed assets. Once a method is
chosen for a particular asset, you cannot switch to the other method for that
asset.

### Diminishing Value (DV)

The depreciation claim each year is calculated on the asset's current adjusted
tax value (also called "book value" or "opening value").

```
Annual depreciation = Adjusted tax value x DV rate
```

The deduction is largest in the first year and decreases each subsequent year as
the adjusted tax value falls.

### Straight Line (SL)

The depreciation claim each year is a fixed percentage of the asset's original
cost.

```
Annual depreciation = Cost x SL rate
```

The deduction is the same amount every year over the asset's useful life.

### Choosing a Method

- DV gives higher deductions in early years, which suits assets that lose value
  quickly or when cash flow matters.
- SL gives consistent deductions, which simplifies forecasting.
- Once chosen, you must continue using that method for the life of the asset.
- Different assets can use different methods.

---

## 2. Low-Value Assets

### Immediate Expensing (Current Rule)

Assets costing $1,000 or less (excluding GST if GST-registered) can be fully
expensed in the year of purchase. No depreciation schedule is required.

This applies per individual asset, not per invoice. For example, three hand
tools at $300 each on a single invoice are each under $1,000 and can each be
expensed immediately.

### Partial Immediate Expensing (From 22 May 2025)

From 22 May 2025, a new rule allows:

- **20% of the cost** of new depreciable assets to be claimed as an immediate
  deduction in the year of purchase.
- The **remaining 80%** of the cost is depreciated over the asset's useful life
  using the chosen method (DV or SL) at the applicable rate.

This applies to assets that cost more than $1,000 and are not otherwise eligible
for full immediate expensing.

---

## 3. Common Builder Asset Depreciation Rates

All rates are from the IRD General Depreciation Rates (IR265, August 2024).

### Motor Vehicles

| Asset | Est. Life | DV Rate | SL Rate |
|---|---|---|---|
| Motor vehicles (general) | 5 years | 30% | 21% |
| Utes and light trucks (up to 3.5t) | 5 years | 30% | 21% |
| Heavy trucks (over 3.5t) | 8 years | 18% | 12.5% |
| Trailers | 10 years | 13% | 9.5% |

### Power Tools and Equipment

| Asset | Est. Life | DV Rate | SL Rate |
|---|---|---|---|
| Portable power tools | 5 years | 40% | 30% |
| Fixed/bench power tools | 10 years | 18% | 12.5% |
| Compressors (portable) | 10 years | 18% | 12.5% |
| Concrete mixers (portable) | 8 years | 22% | 15.5% |
| Generators (portable) | 10 years | 18% | 12.5% |
| Welding equipment | 8 years | 22% | 15.5% |
| Nail guns / fastening tools | 5 years | 40% | 30% |
| Laser levels / surveying | 5 years | 40% | 30% |

### Site Equipment

| Asset | Est. Life | DV Rate | SL Rate |
|---|---|---|---|
| Scaffolding | 10 years | 13% | 9.5% |
| Ladders (aluminium) | 10 years | 13% | 9.5% |
| Ladders (fibreglass) | 8 years | 18% | 12.5% |
| Temporary fencing | 5 years | 30% | 21% |
| Safety harness systems | 5 years | 30% | 21% |
| Wheelbarrows | 5 years | 40% | 30% |

### Office and Technology

| Asset | Est. Life | DV Rate | SL Rate |
|---|---|---|---|
| Computers / laptops | 4 years | 50% | 40% |
| Mobile phones | 3 years | 67% | 67% |
| Non-residential buildings | - | 0% | 0% |

Note: Non-residential buildings have a 0% depreciation rate. This was removed in
2010 and has not been reinstated. You cannot claim depreciation on commercial or
industrial buildings.

---

## 4. Depreciation Calculation Examples

### Example 1: DeWalt Circular Saw -- $899 (DV method)

Asset cost: $899 (excl GST)
Category: Portable power tools
DV rate: 40%
Estimated useful life: 5 years

| Year | Opening Value | Depreciation (40%) | Closing Value |
|---|---|---|---|
| 1 | $899.00 | $359.60 | $539.40 |
| 2 | $539.40 | $215.76 | $323.64 |
| 3 | $323.64 | $129.46 | $194.18 |
| 4 | $194.18 | $77.67 | $116.51 |
| 5 | $116.51 | $116.51 | $0.00 |

In the final year, you can deduct the remaining adjusted tax value to bring the
asset to zero (assuming it is still held and used in the business).

### Example 2: Toyota Hilux Ute -- $45,000 (DV method, partial business use)

Asset cost: $45,000 (excl GST)
Category: Utes and light trucks (up to 3.5t)
DV rate: 30%
Estimated useful life: 5 years
Business use: 70%

| Year | Opening Value | Full Depreciation (30%) | Business Portion (70%) | Closing Value |
|---|---|---|---|---|
| 1 | $45,000.00 | $13,500.00 | $9,450.00 | $31,500.00 |
| 2 | $31,500.00 | $9,450.00 | $6,615.00 | $22,050.00 |
| 3 | $22,050.00 | $6,615.00 | $4,630.50 | $15,435.00 |
| 4 | $15,435.00 | $4,630.50 | $3,241.35 | $10,804.50 |
| 5 | $10,804.50 | $10,804.50 | $7,563.15 | $0.00 |

Only the business-use portion is deductible. Keep a logbook to substantiate the
business-use percentage. The closing value in this table reflects the full
depreciation applied to the asset's adjusted tax value, not just the claimable
portion.

### Example 3: Hand Tools Under $1,000 -- Immediate Expense

A builder purchases the following hand tools:

- Stanley hammer: $65
- Tape measures (x3): $45 each = $135
- Set of chisels: $180
- Spirit level: $95

Total: $475 (excl GST)

Each item costs less than $1,000 (excl GST). The full $475 can be claimed as a
business expense in the current tax year. No depreciation schedule is needed.

Record each item individually in your expense records with a description and
cost.

---

## 5. Disposal of Assets

When you sell, scrap, or otherwise dispose of a depreciable asset, there are tax
consequences.

### Depreciation Recovery Income

If you sell an asset for more than its adjusted tax value (book value), the
difference is taxable income, up to the original cost of the asset.

```
Depreciation recovery = Sale price - Adjusted tax value
(capped at: Original cost - Adjusted tax value)
```

Example: You bought a portable generator for $2,000 and have depreciated it to
$800. You sell it for $1,200.

- Depreciation recovery income: $1,200 - $800 = $400
- This $400 is added to your taxable income for the year.

### Loss on Disposal

If you sell an asset for less than its adjusted tax value, the difference is a
deductible loss.

```
Loss on disposal = Adjusted tax value - Sale price
```

Example: You bought scaffolding for $5,000 and have depreciated it to $3,000.
You sell it for $2,000.

- Loss on disposal: $3,000 - $2,000 = $1,000
- This $1,000 is a deductible expense in the year of disposal.

### Scrapped or Written Off

If an asset is scrapped, destroyed, or stolen and has no sale proceeds:

- The remaining adjusted tax value is a deductible loss.
- You must be able to demonstrate the asset was genuinely disposed of (not just
  lost track of).

---

## 6. Keyword-to-IRD-Category Matching Table

This table maps common receipt keywords to IRD depreciation categories for
auto-categorisation of builder purchases.

| Keywords | IRD Category | DV Rate |
|---|---|---|
| drill, saw, grinder, sander, router, planer, jigsaw | Portable power tools | 40% |
| nail gun, brad nailer, stapler, rivet gun, fastener tool | Nail guns / fastening tools | 40% |
| laser level, dumpy level, theodolite, surveying | Laser levels / surveying | 40% |
| wheelbarrow, barrow | Wheelbarrows | 40% |
| bench saw, table saw, bandsaw, bench drill, pillar drill | Fixed/bench power tools | 18% |
| compressor, air compressor | Compressors (portable) | 18% |
| generator, genset | Generators (portable) | 18% |
| concrete mixer, cement mixer | Concrete mixers (portable) | 22% |
| welder, welding, mig, tig, arc welder | Welding equipment | 22% |
| scaffolding, scaffold | Scaffolding | 13% |
| ladder (aluminium, aluminum) | Ladders (aluminium) | 13% |
| ladder (fibreglass, fiberglass) | Ladders (fibreglass) | 18% |
| temporary fencing, temp fence, site fence | Temporary fencing | 30% |
| harness, safety harness, fall arrest, lanyard | Safety harness systems | 30% |
| ute, truck, van, hilux, ranger, navara, triton, amarok | Motor vehicles (general) / Utes | 30% |
| trailer, box trailer, plant trailer | Trailers | 13% |
| laptop, computer, macbook, ipad, tablet | Computers / laptops | 50% |
| phone, iphone, samsung, mobile | Mobile phones | 67% |

Notes for auto-categorisation logic:

- Match keywords case-insensitively against the item description on a receipt.
- If an item matches multiple categories, prefer the more specific category.
- Items costing $1,000 or less (excl GST) should be flagged for immediate
  expensing regardless of category.
- Items not matching any keyword should be flagged for manual review.

---

## Authoritative Sources

- **Income Tax Act 2007 -- Subpart EE (Depreciation)**
  https://www.legislation.govt.nz/act/public/2007/0097/latest/DLM1512301.html

- **IRD IR265 -- General Depreciation Rates (August 2024)**
  https://www.ird.govt.nz/income-tax/income-tax-for-businesses-and-organisations/types-of-business-expenses/depreciation/general-depreciation-rates

- **IRD Depreciation Rate Finder**
  https://www.ird.govt.nz/income-tax/income-tax-for-businesses-and-organisations/types-of-business-expenses/depreciation/depreciation-rate-finder

- **IRD -- Claiming Depreciation**
  https://www.ird.govt.nz/income-tax/income-tax-for-businesses-and-organisations/types-of-business-expenses/depreciation/claiming-depreciation

---

*This reference document is for use by the kiwi-receipts OpenClaw skill to
assist with depreciation categorisation and calculation. It does not constitute
tax advice. Builders and contractors should consult a qualified tax professional
for their specific circumstances.*
