Amortisation rates for listed horticultural plants (May 05)

This Determination may be cited as "Determination DET 05/01 Amortisation rates for listed horticultural plants".

1. Explanation (which does not form part of the Determination)

This Determination sets out the amortisation rates (on the basis of diminishing values) for listed horticultural plants as determined by the Commissioner of Inland Revenue and listed in the schedule to this Determination.

2. Reference

This Determination is made pursuant to section 91AAB of the Tax Administration Act 1994.

3. Scope of Determination

This Determination shall apply from the 2004 and subsequent income years. Its application will be supplemented or amended by supplementary Determinations pursuant to subsection 91AAB(4) of the Tax Administration Act 1994.

4. Interpretation

In this Determination, unless the context otherwise requires, expressions used have the same meanings as those in sections DO 4, DO 4B, DO 4C, DO 4D, OB 1 and Schedule 7 of the Income Tax Act 1994 and section 91AAB of the Tax Administration Act 1994 in respect of the 2004 and 2005 income years.

In this Determination, unless the context otherwise requires, expressions used have the same meanings as those in sections DO 4, DO 4B, DO 4C, DO 4D, DO 4E, OB 1 and Schedule 7 of the Income Tax Act 2004 and section 91AAB of the Tax Administration Act 1994 in respect of the 2006 and subsequent income years.

5. Determination

Pursuant to section 91AAB of the Tax Administration Act 1994:

1. for the purposes of section 91AAB(1)(a), the types of horticultural plant, tree, vine, bush, cane, or similar plant, as set out in the schedule to this Determination, shall be listed horticultural plants; and
    
2. for the purposes of section 91AAB(1)(b), for the 2004 income year, the banded rate set out in column 1 of Schedule 11 of the Income Tax Act 1994 that is to be used to calculate the diminishing value for each type of listed horticultural plant shall be at the election of the taxpayer either:
   1. the amortisation rates as set out in column 2 of the schedule to this Determination; or
       
   2. 10% (which does not include the 20% loading); and
3. for the purposes of section 91AAB(1)(b), for the 2005 income year, for a taxpayer whose return has been furnished on or before 30 June 2005, the banded rate set out in column 1 of Schedule 11 of the Income Tax Act 1994 that is to be used to calculate the diminishing value for each type of listed horticultural plant shall be at the election of the taxpayer either:
   1. the amortisation rates, as set out in column 2 of the schedule to this Determination; or
       
   2. 10% (which does not include the 20% loading); and
4. for the purposes of section 91AAB(1)(b), for the 2005 income year, for a taxpayer whose return is furnished after 30 June 2005, the banded rate set out in column 1 of Schedule 11 of the Income Tax Act 1994 that is to be used to calculate the diminishing value for each type of listed horticultural plant shall be the amortisation rates as set out in column 2 of the schedule to this Determination; and
    
5. for the purposes of section 91AAB(1)(b), for 2006 and subsequent income years, the banded rate set out in column 1 of Schedule 11 of the Income Tax Act 2004 that is to be used to calculate the diminishing value for each type of listed horticultural plant shall be the amortisation rates as set out in column 2 of the schedule to this Determination.

This Determination is made by me, acting under delegated authority from the Commissioner of Inland Revenue under section 7 of the Tax Administration Act 1994.

This Determination is signed on the 13th day of May 2005.

Graham Tubb
National Manager
Technical Standards

SCHEDULE TO DETERMINATION DET 05/01

AMORTISATION RATES FOR LISTED HORTICULTURAL PLANTS

* Please note a 20% loading is to be added to the percentage in column 2 to arrive at the total diminishing value amortisation rate available each income year.

* Please note a 20% loading is to be added to the percentage in column 2 to arrive at the total diminishing value amortisation rate available each income year.

COMMENTARY ON DETERMINATION DET 05/01

Introduction
This commentary does not form part of the Determination. It is intended to provide assistance in the understanding and application of the Determination.

This Determination sets out the diminishing value amortisation rates (depreciation like deductions) that the Commissioner has determined for each horticultural plant that is listed in the schedule to this Determination.

A 10% amortisation rate, which does not include the 20% loading, applies to most other horticultural plants that are not included in the schedule to this Determination.

For those horticultural plants listed in the schedule to this Determination, taxpayers who have furnished their 2005 income returns on or before 30 June 2005 may elect to apply either the amortisation rate of 10% (plus a 20% loading) or the amortisation rate(s) as set out in column 2 of the schedule to this Determination. This option is also available to all affected taxpayers for the 2004 income year.

Estimated useful life
The main element the Commissioner has taken into account to establish the amortisation rate for each listed horticultural plant is its estimated useful life. Where appropriate, the following have been taken into account in arriving at the amortisation rates of listed horticultural plants.

• The main purpose for which a listed horticultural plant has been cultivated; and
• The manner in which a listed horticultural plant is cultivated and managed.

The estimated useful life of a listed horticultural plant commences on the day of planting and continues until the plant might reasonably be expected to cease to be useful to a person in deriving income or carrying on a horticultural business.

The main factor that has been taken into account in calculating the estimated useful life of a listed horticultural plant is that it has passed its commercial "use-by" date. This, in essence, is due to the plant's age and the fact that it can no longer deliver an economic crop.

Other factors that have a significant impact on the estimated useful life of a listed horticultural plant have been taken into account. This includes such things as natural and incidental damage, decay, disease and exhaustion.

Inland Revenue has not taken into account any element where a specific deduction is provided for in the legislation. This includes replacement plantings, or where a listed horticultural plant has ceased to exist or be used to derive income.

Crop management techniques, such as regeneration, topworking and reworking where trees are potentially cut back to their stumps, have also been taken into account in determining the estimated useful life of listed horticultural plants. Where the process of topworking or reworking involves grafting a new variety on to the old root system, it is considered that a new plant has been established.

The estimated useful life of each listed horticultural plant has been established by Inland Revenue following extensive consultation with grower organisations and industry experts.

Amortisation rates
The process adopted in arriving at the amortisation rates of listed horticultural plants commenced with the establishment of an appropriate level of estimated useful life for each listed plant. This data is then translated into an established straight line equivalent rate as set out in column 2 of Schedule 11 Banded rate of depreciation of the Income Tax Act 1994 and the Income Tax Act 2004 (Schedule 11). The straight line equivalent rate in column 2 is further translated into an appropriate diminishing value depreciation rate as set out in column 1 of Schedule 11.

Where a listed horticultural plant's established straight line equivalent rate falls between two rates in column 2 of Schedule 11, a rounding process has been adopted whereby the rate is either rounded up or down. Where such a rate falls equally between two straight line equivalents, the rate is rounded up.

The amortisation rates listed in the schedule to this Determination have been established for the widest possible application. Where the estimated useful lives of the various species of a plant variety do not materially differ, only one amortisation rate has been established for that variety.

Please note that 20% is to be added to the rates shown for each listed horticultural plant in column 2 of the schedule to the Determination to arrive at the diminishing value amortisation rate available each income year.

Application of this Determination to the 2004 and 2005 income years

This Determination applies from the 2004 income year.

Most growers of horticultural plants included in this Determination should have already furnished their 2004 income returns when this Determination is promulgated. A few with early balance dates may also have filed their 2005 income returns.

Amortisation rates and replacement planting deductions claimed in those income returns furnished prior to the issue of this Determination should have been based on the previous rules that applied. Consequently, deductions for these items may be over or understated. The level of any adjustment depends on a number of factors. Some adjustments may not result in material changes to deductions already claimed. Whether any adjustment is material is to be based on the judgement of each grower.

Any requests to amend assessments are to be:

• requested in writing; and
• made for the income year where the adjustment arises; and
• made at the earlier of when the next income return is furnished or the last day for furnishing that next return.

Growers will not be expected to follow the disputes resolution process to request these specific adjustments for the 2004 and early balance date 2005 income returns furnished on or before 30 June 2005.

Inland Revenue acknowledges that:

• it may take some time for growers, their associations and advisers to familiarise themselves with this Determination and its effect on the deductions available to them; and
• many of the adjustments may not be material and would not provide the most efficient use of Inland Revenue's resources; and
• the reduction of growers' compliance costs is a primary consideration.

To that end, for the 2004 (and 2005 income returns that have been furnished on or before 30 June 2005), it is possible to use the "old" amortisation rate at the taxpayer's election. The Department will regard an election as having been made by a grower at the later of:

• when their 2004 and/or 2005 income return(s) are furnished; or
• when an amended assessment is requested for those income years. This date will be the earlier of:
  1. when the next income return is furnished; or
  2. the last day for furnishing that next income return.

Additions of new amortisation rates/amendments to existing amortisation rates

Where a horticultural plant has not been determined by the Commissioner as a listed horticultural plant, taxpayers may apply in writing to the Commissioner for a specific horticultural plant or category of horticultural plants to be so determined.

Changes may be made to the Determination from time to time by the Commissioner on receipt of written applications from grower organisations. Amendments may include adding further horticultural plants to those already listed, adjusting the estimated useful life of a horticultural plant or removing a plant that is no longer commercially grown. Amendments may be effective for the current or future income years. They will not apply to retrospective income years.

Amendments to this Determination will be made by the Commissioner issuing supplementary Determinations pursuant to subsection 91AAB(4) of the Tax Administration Act 1994.

Applications for changes must include the following information.

• The nature of the amendment to the Determination being sought. This may be a new amortisation rate, amend an existing amortisation rate or remove an existing amortisation rate.
• Applicant's details. This includes full name, IRD number (if applicable), address, land line telephone number, fax number, cell phone number and the contact person for enquiries.
• Horticultural plant information. This includes:
  1. describing the horticultural plant;
  2. the income year the change is requested to apply from (amendments may be effective for the current or future income years), they will not be made to retrospective income years;
  3. the reasons for requesting to amend the Determination (adding further horticultural plants to those already listed, adjusting the estimated useful life of a horticultural plant due to a change or removing a plant that is no longer commercially grown);
  4. the organisation's detailed assessment of the plant's estimated useful life (this is to include any evidence to support that assessment);
  5. A detailed assessment by an independent industry expert of the plant's estimated useful life (this is to include any evidence to support that assessment).

The application process for a horticultural plant to be determined as a listed horticultural plant or to amend the amortisation rate for an existing listed horticultural plant is summarised in the flowchart attached as appendix "A".

Applications for changes to the Determination are to be sent to:

The National Manager
Technical Standards
National Office
Inland Revenue
P O Box 2198
WELLINGTON

In considering applications for amendment to the listed horticultural plant Determination, the Commissioner will continue to consult with relevant grower organisations and industry experts.

The Commissioner will discuss any amendment that is to be made to the listed horticultural plant Determination with the applicant before it is finalised.

Appendix "A"

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