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Technical tax area Ngā tūmomo whakataunga me ngā aratohu

Determination PROV 22: Provisional depreciation rate for Dairy Plant Dry Store Buildings

The Commissioner has determined the estimated useful life and depreciation rate applicable to dry store buildings used in the "Dairy Plant" industry. A dry store building typically has a reinforced concrete floor, with steel framing and galvanised steel wall and roof cladding. It is used for the safe storage of processed dairy products, which are particularly susceptible to contamination.

This depreciation determination applies to dry store buildings that are built adjacent to and are closely inter-related to the milk powder dryer building. The "Dairy Plant" industry category provides a diminishing value depreciation rate of 13% for "Powder dryer buildings", based on an estimated useful life of 15.5 years. Within the dairy industry, the second time that a powder dryer building is demolished and replaced, the adjacent dry store building would also be required to be replaced.

In the case of those dry store buildings that are located adjacent to the powder dryer building, the Commissioner considers there are a number of factors that would mean that the useful life of a dry store building would have a useful life that is closely aligned to the useful life of the powder dryer building. These are:

  • The degree to which the dry store is integral to the production of the powder dryer plant. As production increases, storage capacity must also increase, so the dry store building that supports the powder dryer buildings must increase at a similar pace.
  • In the course of producing milk powder corrosive material which has an effect on the physical life of the dry store building is expelled from the powder dryers when the plant is purged between production runs.
  • The Commissioner takes a total life approach to determine the useful life of an asset, which requires the consideration of possible uses of the asset including possible secondary uses for the asset by the current owner. The useful life of an on-site dry store building is closely linked to the cycle of replacing the powder dryer building and unlike those dry store buildings which are not situated within the dairy company's premises (which are a part of the dairy industries distribution network) there would be no secondary use of an on-site dry store building.

The above factors would not, on their own, be sufficient to influence the useful life of a dry store building. However, when considered accumulatively, the Commissioner is satisfied that the useful life of an on-site dry store building, built adjacent to, and integral to, a powder dryer building is 33.3 years.


Determination PROV 22: Tax Depreciation Rates Provisional Determination Number PROV 22

This determination may be cited as "Determination PROV 22: Tax Depreciation Rates Provisional Determination Number PROV 22".

1. Application

This determination applies for the 2011 and subsequent income years.

2. Determination

Pursuant to section 91AAG of the Tax Administration Act 1994 I set in this determination the provisional rate/s to apply to the kind/s of items of depreciable property listed in the table below by:

  • Adding into the "Dairy Plant" industry category and the "Buildings and Structures" asset category, the provisional asset class, estimated useful life, and diminishing value and straight-line depreciation rate listed below:
"Dairy Plant" industry category, and "Buildings and Structures" asset category Estimated
useful life
(years)
DV rate
(%)
SL rate
(%)
Dairy Plant Powder Drying Plant dry store buildings, acquired before 19 May 2005 33.3 6 4
Dairy Plant Powder Drying Plant dry store buildings, acquired on or after 19 May 2005 33.3 4.5 3

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 on the 27th day of February 2012.

Rob Wells
LTS Manager, Technical Standards