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Technical tax area Ngā tūmomo whakataunga me ngā aratohu

Cost of timber

Sections DP 11 and YA 1 of the Income Tax Act 2007; sections DP 10 and OB 1 of the Income Tax Act 2004

Amendments have been made to align the rules relating to deductions for certain forestry expenditure with new generally accepted accounting principles (International Financial Reporting Standards GAAP) requirements.


The main purpose of section DP 11 of the Income Tax Act 2007 (section DP 10 of the Income Tax Act 2004) is to allow a deduction for certain forestry expenditure that might not otherwise be deductible. It also quantifies and times this deduction.

However, the deduction is linked to the accounting treatment of expenditure that should be capitalised as part of the "cost of bush" under generally accepted accounting principles (GAAP). It was identified that the effect of the GAAP requirements in the provision potentially resulted in section DP 11 not applying to either:

  • a person who owns forestry assets but does not account for those assets in financial reports; or
  • a person who owns forestry assets, and who is required to comply with GAAP, in particular NZIAS 41, under which forestry assets must be reported at value, and not as a "cost of timber".

Because the term "cost of timber" was defined by reference to the amount that was allowed as a deduction in section DP 11, it was unclear whether an expenditure incurred after timber was harvested could be included in the amount that is a "cost of timber". This circularity created uncertainty as to which provisions should apply to costs such as environmental restoration expenditure.

Key features

The section has been amended to remove a reference to GAAP. This amendment ensures that section DP 11 can apply to:

  • a taxpayer owing forestry assets but does not report those assets in financial statements; and
  • a taxpayer complying with GAAP and who cannot report "cost of timber" in their financial statements.

In addition, the definition of "cost of timber" in the 2004 Act has been amended to clarify that an amount cannot be a cost of timber if:

  • the amount is an expenditure to which sections DB 46 or DQ 4 of the 2007 Act (sections DB 37 or DQ 4 of the 2004 Act) apply;
  • the expenditure is incurred after the timber is harvested (for harvested timber); or
  • the expenditure is incurred after the disposal of standing timber or any right to take timber or any other right referred to in section DP 11(4) (DP 10(4) of the 2004 Act).

Application date

As the adoption of IFRS in relation to forestry assets can affect taxpayers back to the 2005-06 income year, the amendments for "cost of timber" apply from:

  • the 2008-09 income year for the 2007 Act; and
  • the 2005-06 income year for the 2004 Act.