Geothermal and thermal powerhouses

Note to Determination PROV 27

The Commissioner of Inland Revenue has set a provisional depreciation rate for geothermal and thermal powerhouses by adding new asset classes to the “Power generation and electrical reticulation” industry category and the “Buildings and structures” asset category.

Geothermal and thermal powerhouses are made up of a number of items of depreciable property, including:

• The powerhouse building – the building itself, including the building’s structural elements (including foundations, pillars and beams), walls, internal floors and roof;
• Turbines and generators, including any additional or extraordinary foundations that are directly attached to these items of plant and whose sole purpose is to provide the necessary support and stability that the turbines and generators require to function;
• Gantry cranes, including any crane beams and rails on which the crane travels;
• Other components of plant that are situated within a geothermal or thermal powerhouse building.

Geothermal and thermal powerhouse buidling
Geothermal and thermal powerhouse buildings meet the criteria of the building test set out in Interpretation Statement IS 10/02 Meaning of “building” in the depreciation provisions. The component parts of a building (the structural elements (including the foundations, pillars and beams), walls, floor and roof) will always form part of the building even when they are strengthened to allow items of plant to be attached to the building. This is because the purpose of the component parts of a building is to allow the building to function as a building. For instance, where an air conditioning unit is attached to the roof of a building, the roof remains part of the building and does not form part of the air conditioning unit. Even if the roof were to be strengthened to take the weight of the air conditioning unit, because any building requires a roof, this strengthening would be undertaken to allow the building to remain functioning as a building in the particular setting for which it was designed. Similarly, attaching the gantry crane rails to the building pillars does not mean that these pillars (and their strengthened foundations) will form part of the crane. These remain part of the building and are depreciated accordingly.

Geothermal and thermal powerhouses should be depreciated at a rate of 0%, as set out in the determination below.

Turbines and generators
Turbines and generators are plant and are depreciated in line with the general economic rate provided in the “Power generation and electrical reticulation systems” industry category. This provides for an estimated useful life of 20 years for “Turbines (steam)” and “Generators (steam)” at a rate of 10% DV, based on an estimated useful life of 20 years. In the context of a geothermal or thermal powerhouse, a turbine or generator includes any purpose built plant foundations that are additional to the building’s floor and foundations and that are directly attached to these items of plant in order to provide the necessary support and stability that the turbines and generators require to function.

Gantry cranes
Gantry cranes are plant and are depreciated in line with the general economic rate provided in the “Lifting” asset category. This provides for an estimated useful life of 25 years for “Cranes (overhead travelling)”. In the context of a geothermal or thermal powerhouse, a gantry crane includes all of the components (including the rails that are attached to the powerhouse building) that allow the crane to function, but not those pillars or foundations which are also part of the structure of the building.

Other components
To the extent that other components situated within a geothermal or thermal powerhouse building are separate depreciable property, they are to be depreciated in line with the general economic rate provided in the “Power Generation and electrical Reticulation Systems” industry category.

The provisional depreciation rates for geothermal and thermal powerhouse buildings do not apply to powerhouses used as part of other forms of electricity generation.

Determination: Tax Depreciation Rates Provisional Determination Number 27

1. Application

This determination applies to taxpayers who own depreciable property of the kind listed in the table below.

This determination applies from the 2012 and subsequent income years.

2. Determination

Pursuant to section 91AAG of the Tax Administration Act 1994, the provisional determination will apply to the kind of items of depreciable property listed in the table below by adding into the “Power generation and electrical reticulation” industry category and the “Buildings and structures” asset category, new asset classes, estimated useful lives (EUL), and diminishing value (DV) and straight line (SL) depreciation (Depn) rates, as listed below:

3. Interpretation

In this determination, unless the context otherwise requires, words and terms have the same meaning as in the Income Tax Act 2007 and the Tax Administration Act 1994.

This determination is signed by me on the 23rd day of February 2016.

Vanessa Montgomery
LTS Manager, Technical Standards