Deductibility of depreciable intangible property listed in Schedule 14

2013 amendments clarify that depreciable intangible property is deductible under the depreciation rules. Applies 1 Apr 2008 for the Income Tax Act 2007.

Section EE 7 of the Income Tax Act 2007; section EE 7 of the Income Tax Act 2004

The amendments clarify that depreciable intangible property listed in schedule 14 of the Income Tax Act 2007 and in schedule 17 of the Income Tax Act 2004 is deductible under the depreciation rules.

Background

Previously, there had been some uncertainty over whether certain depreciable intangible property listed in schedule 14 of the 2007 Act and schedule 17 of the 2004 Act was deductible under the depreciation rules. This was a result of changes to the tax legislation dating from 1993, when certain intangible property such as "the right to use land" became deductible under the depreciation rules.

In particular, the uncertainty arose from the exclusion of excepted financial arrangements from the definition of "depreciable property" in section EE 7(e) under the 2007 and the 2004 Income Tax Acts. The exclusion was introduced by the 2004 Act.

Leases are excepted financial arrangements under section EW 5(9) of the 2007 and the 2004 Income Tax Acts and the term "lease" is widely defined in the financial arrangements rules to include leases or licences of land, and licences to use intangible property. Consequentially, most depreciable intangible property listed in schedules 14 and 17 of the 2007 and 2004 Income Tax Acts (respectively) would be excepted financial arrangements and could be excluded from being depreciable property for deduction purposes.

Also, the specific exclusion of land from the definition of "depreciable property" in section EE 7(a) of the 2007 Income Tax Act created uncertainty over whether the "right to use land" listed in schedule 14 was deductible under the depreciation rules. This was a result of adopting a generic definition of "land", which includes leases and licences of land, as part of the rewrite of the Income Tax Act 2004.

Key features

The exclusions for land and excepted financial arrangements from the definition of "depreciable property" in section EE 7 have been amended. The purpose is to clarify that depreciable intangible property listed in schedule 14 of the 2007 Income Tax Act and schedule 17 of the 2004 Income Tax Act remains depreciable for deduction purposes.

Application dates

The amendment to section EE 7 of the Income Tax Act 2007 applies from 1 April 2008.

The amendment to section EE 7 of the Income Tax Act 2004 applies from 1 April 2005.