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Topic # 205364 10-Nov-2016 09:02
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I read IRD's website / PDF.  The depreciation life of technology goods is 3yrs for computers, laptops, tablets, smartphones.  One could be a office worker on a contractor agreement or a mum and dad who just have a rental that they rent out or they may run the local fruit shop.  3yrs mean the device would be pretty aged right esp for a handphone?  If one got it for $500 or less they don't need to depreciate they can simply expense it but one would assume it ought to last 3yrs also right unless they sell it at market price and get another one.  

 

 

 

Also what happens with second hand goods?  If one gets a 4yr old computer.  It is low enough you can expense it but does one use that for 1yr or 3yr?

 

 

 

Thoughts?  


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  Reply # 1667146 10-Nov-2016 09:07
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Did you have a question Ray? There's no text in your post.

 

Edit - how weird, when I viewed the thread there was no text, after I replied it turned up.





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  Reply # 1667148 10-Nov-2016 09:09
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timmmay:

 

Did you have a question Ray? There's no text in your post.

 

Edit - how weird, when I viewed the thread there was no text, after I replied it turned up.

 

 

 

 

Sorry I hit the enter button by mistake so an empty post.  I've now added the post by using edit.  :) 


 
 
 
 


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  Reply # 1667155 10-Nov-2016 09:18
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Personally I think the IRD rules are behind the times. A 2 year depreciation period on electronics seems reasonable.






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  Reply # 1667164 10-Nov-2016 09:36
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Geektastic:

 

Personally I think the IRD rules are behind the times. A 2 year depreciation period on electronics seems reasonable.

 

 

Things tend to break after two years and the difference could be written off.

 

You could also sell it when you need to upgrade and do tax adjustments.

 

 


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  Reply # 1667165 10-Nov-2016 09:38
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My computer's five years old, but laptops would age much more quickly. My professional cameras are five years old, but most wouldn't last that long, mine are lightly used.





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  Reply # 1667170 10-Nov-2016 09:47
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cynnicallemon:

 

Geektastic:

 

Personally I think the IRD rules are behind the times. A 2 year depreciation period on electronics seems reasonable.

 

 

Things tend to break after two years and the difference could be written off.

 

You could also sell it when you need to upgrade and do tax adjustments.

 

 

 

 

 

 

But why not just have a more realistic write down period that reflects reality, rather than a load of extra hassle calculating adjustments etc.?






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  Reply # 1667188 10-Nov-2016 09:55
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Geektastic:

 

 

 

But why not just have a more realistic write down period that reflects reality, rather than a load of extra hassle calculating adjustments etc.?

 

 

Have you asked the IRD?

 

They can change it, I can't.

 

 


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  Reply # 1667190 10-Nov-2016 09:56
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Not really sure what the question was in there... but anyway my 2c

 

 

 

Phones - dep rate is 67% on declining value. Computers are 50%. When purchasing for a business remember GST comes off the retail price.

 

If total cost of item is under $500 it can be treated as a business expense. If it's $500 or more you need to capitalise and depreciate.

 

Under declining value, there will always be some residual number in your balance sheet, and once it's small enough can be reasonably written off. Obviously if the item is damaged beyond repair (drop's etc), then it needs to be written off as a cost to your business.

 

On the other hand, if the value of the item was say $25 in your books, but you managed to sell it for $100 at the markets, you've made a gain on the value of the item - $75 - which is revenue to your business and needs to be treated as such.

 

 

 

Regarding 2nd hand kit, usually (but not always) there isn't GST on it (but a 2nd hand car from a dealer for example would have GST). Same principle's apply - a value is applied to the goods and a reasonable useful period as if it were new is used. You may doubt a 4-year old computer could run for 3 years - but why would you spend >$500 on a 4yr old machine unless it was pretty special and therefore had reasonable value to your business?

 

As to whether kit actually lasts 2 years etc, there is a difference between reasonable business cycle and how it's used. A $1000 smartphone will have $670 dep in year 1 and $221 dep in year 2, with is $891 writeoff. It doesn't die at the end of 24months, and is effectively written off in value by that point.

 

Don't forget as well that partial year applies to depreciation - if you buy a phone 6 months into your financial year, you can only prorate the claim for the remaining months in your books for that first year...

 

Boring I know... btw I'm not an accountant!

 

 





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  Reply # 1667205 10-Nov-2016 10:01
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antoniosk:

 

When purchasing for a business remember GST comes off the retail price.

 

 

 

 

Exactly this, a 15% discount to start with. And before anyone says "but you have to pay GST on sales...", yes that's true but the idea of being in business is to sell more than you buy.

 

 


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  Reply # 1667216 10-Nov-2016 10:39
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cynnicallemon:

 

antoniosk:

 

When purchasing for a business remember GST comes off the retail price.

 

 

 

 

Exactly this, a 15% discount to start with. And before anyone says "but you have to pay GST on sales...", yes that's true but the idea of being in business is to sell more than you buy.

 

 

 

 

 

 

So you can cover your time as an unpaid tax collector for the IRD...! ;-)








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  Reply # 1667226 10-Nov-2016 10:49
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I was thinking about straight line depreciation for simplicity.  I primarily wasn't planning about disposing before the 3yrs (3rys as written by the IRD).  

 

 

 

Let's make it brand new.  If it is <$500 ex. GST.  You can just expense it but you ought to use it for 3yr right?  Surely you cannot just get a ~$550 including GST smartphone every year or every 6 months.  That would get picked up from an audit a new phone each year?!


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  Reply # 1667285 10-Nov-2016 11:40
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If I can roughly expand on the bigger picture of why 3 years from a market side of things.

Broadly speaking the overall (PC/Device/Electronic) market could be split into two segments, business and consumer. Each of these segments can be split into 3 subcategories; high-end, medium, low end. Often, when a manufacturer produces a new product it starts off in the high-end category and as it ages, drops down through medium and then low end. Pricing (price range) often is determined by the segment the good is in, for example a PC could be: High=end, us$4k-2k, medium=$2k-1K and low end sub $1k. - you might see this represented in ths PC space as Server/Workstation/Desktop (or workstation, laptop and office PC)

The length of time (assuming no technology shift) for a product introduced to high end to drop down through to end of life is about 3 years. For example Intels Tick/Tock cadence was between 12 and 18months (18 x 2 = 36 months) and companies like Microsoft used to relelase software (OS's) every 3 years.

Often a manufacturer might break a product down into multiple SKUs differentiated by feature set and market segment (range). The idea being it becomes easier to determine where the price/feature point is for where customers are buying. So you might see a base phone, with a deluxe model, or you might see a new deluxe model and the previous years one drops down a price range as it ages.

For a business, one could purchase equipment using capex (or opex if it is leased) and then depreciate the product into a depreciation account, when the cost of the good in recovered, the recovered capex can be used to replace the equipment at the same price range that it was originally purchased at (often with adjustment for inflation). The cycle that this happens is 3 years or so. A strategy can be to spread volume purchases over a three year period, this can help enable a continuous replacement strategy where devices are aged under an asset registration scheme and oldest devices are replaced first.

I believe there are rules around the special edge cases of already depreciated or second hand goods.




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  Reply # 1667308 10-Nov-2016 12:22
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rayonline:

 

I was thinking about straight line depreciation for simplicity.  I primarily wasn't planning about disposing before the 3yrs (3rys as written by the IRD).  

 

 

 

Let's make it brand new.  If it is <$500 ex. GST.  You can just expense it but you ought to use it for 3yr right?  Surely you cannot just get a ~$550 including GST smartphone every year or every 6 months.  That would get picked up from an audit a new phone each year?!

 

 

 

 

you can - As an IR geek how can I learn or support latest technologys unless I am actually using them. This then not only gives you GST, Depreciation etc BUT can also count as R & D - which attracts its own tax write offs / tax breaks.

 

 

 

My phones get bent, bumped, scraped and dropped - physical job on a physical site. They are covered in dust, hit with heat, sweated on and used extensively more than a consumer device. Having a phone fail early is almost a given for me - they dont make hardened standards for phones - both consumer and business phones are the same.

 

Laptops the same - I bought an Acer Ferrari, back when it was one of the fastest laptops on the planet ( available to consumer). I killed it within 9 months. Running long data sets calculations - taking 3 days or so - really messes with how long a laptop lasts.  why didn't I use a desktop? Wasn't allowed / suitable in the situation I was in.  5-6k laptop - gone in 9 months. Phones similar - lots of GPS, Wireless tracking, WarDriving, calculations, encryption stuff. it gets hot a lot.

 

 

 

 

 

 





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  Reply # 1667401 10-Nov-2016 14:28
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antoniosk:

 

Boring I know... btw I'm not an accountant!

 

 

The thing about this that annoys me so much, is that it is so much work enforced on the business owner for such little return to the ird. 

 

It can take hours and hours of work to figure out what you must pay back to the IRD, which might be $100 .           It is just such small amounts that the IRD quibbles over but they don't care because the work is forced onto the business owner. 

 

 


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  Reply # 1667425 10-Nov-2016 15:07
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cynnicallemon:

 

antoniosk:

 

When purchasing for a business remember GST comes off the retail price.

 

 

Exactly this, a 15% discount to start with. And before anyone says "but you have to pay GST on sales...", yes that's true but the idea of being in business is to sell more than you buy.

 

 

FYI: Not all companies in NZ are required to be GST registered or charge GST on sales. Hence not true or N/A what you've said to ALL companies.


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