Do the historic depreciation rates continue to apply to grandparented structures acquired before 1 April 2005?

Question

1. We have been asked whether the historic depreciation rates continue to apply to grandparented structures acquired before 1 April 2005, following the issue of determinations DEP79: Remedial matters relating to the depreciation of buildings Depreciation Determination Number 79 (“DEP79”) and DEP81: Fertiliser storage facilities and remedial matters relating to the depreciation of buildings and grandparented structures (“DEP81”).

Answer

2. Yes. The historic depreciation rates continue to apply to grandparented structures acquired before 1 April 2005. DEP79 and DEP81 do not replace the historic depreciation rates. The historic depreciation rates that are published in IR 267 will always continue to apply to items acquired before 1 April 2005 (or to buildings acquired before 19 May 2005).

Discussion

3. Grandparented structures are items that have been regarded and treated as “structures” in the past for depreciation purposes, but now come within the meaning of “buildings” following the issue of Interpretation Statement IS 10/02: Meaning of “building” in the depreciation provisions (“IS 10/02”).
4. “Grandparented structure” is defined in section YA 1 of the Income Tax Act 2007 (“ITA”):
   • Grandparented structure means, for a person, any item on the following list, if the person acquired the item, or entered into a binding contract for the purchase or construction of the item, on or before 30 July 2009:
     1. barns, including barns (drying):
     2. carparks (buildings):
     3. chemical works:
     4. fertiliser works:
     5. powder drying buildings:
     6. site huts
5. The definition of “building” in section YA 1 of the ITA specifically excludes a grandparented structure for the purposes of subparts EE and EZ of the ITA.  So for depreciation purposes, those items listed as grandparented structures that were acquired, or entered into a binding contract for the purchase or construction of the item, on or before 30 July 2009 are not treated as buildings, despite them coming within the meaning of “buildings” in IS 10/02.  Any of these items acquired after that date are treated as a building.
6. DEP79 and DEP81 set the rates applicable to these items acquired after 30 July 2009, by using the formula for calculating depreciation rates for buildings, to apply from the 2011-12 income year. DEP79 and DEP81 also clarify the rates that continue to apply to items acquired on or before 30 July 2009, by separating the asset classes into those acquired on or before 30 July 2009 and those acquired after that date.
7. However, these two determinations do not replace the historic depreciation rates. The historic depreciation rates published in IR 267 are calculated using a different formula that must be applied to any items acquired before 1 April 2005 (or to buildings acquired before 19 May 2005).
8. The following table is a compilation of the depreciation rates that correspond to the acquisition periods, applicable to the items listed as a “grandparented structure”: