Case Study: Income Tax Act, Depreciation, and Relevant Court Cases

This law case study delves into the intricacies of the New Zealand Income Tax Act 2007, focusing on the application of depreciation rules and their implications in various scenarios. The study examines the core principle of taxing net income and the distinction between expenditure and revenue, particularly concerning property depreciation for both private and income-earning purposes. It references key legal precedents, including CIR v Europa Oil (NZ) Ltd and Cecil Bros Pty Ltd v FCT, to illustrate the courts' perspectives on depreciation claims. The analysis extends to the case of Commissioner of Inland Revenue v John Curtis Developments Limited, highlighting the separation of income sources when a property serves multiple purposes. Ultimately, the case study supports the disallowance of expenses in CIR vs Banks, underscoring the importance of registering residential properties for commercial activities to claim related tax benefits. The study concludes with a comprehensive list of references, including books, journals, and online resources, that support the analysis and provide additional context to the subject matter.

LAW CASE

Table of Contents
RULES.............................................................................................................................................3
APPLICATION...............................................................................................................................3
REFERENCES................................................................................................................................4

RULES
In respective of New Zealand Income Tax Act, 2007 the main purpose is to impose taxes
on net income of the current year and not attaining to the income which is to be incurred in case
of insolvency in company or any income before it is earned1. In case of matter related to
depreciation of house it can be determined between the expenditure and revenue earned2. It is
calculated on accrual bases. As depreciation can also be given for both private and income
earning purpose3.
APPLICATION
In case of CIR v Europa Oil (NZ) Ltd [1971] NZLR 641 and Cecil Bros Pty Ltd v FCT
(1962-64) 111 CLR 430, the judges present their reviews on the bases of not agreeing with the
terms regarding making payment in respect of depreciation4. No person can use the property for
private and income earning at the same time5. This judgement is relevant to the stated case study
in which the judgement is to be raised by tax payer regarding getting payment for the expenses
incurred6.
In the case of Commissioner of Inland Revenue v John Curtis Developments Limited, a
large block of land was acquired in Christchurch on which construction of retail shopping centre
started7. Certain payments were received by the taxpayer as development payments on the
1 Wolters Cluwer. 2015. [Online]. Available through
:<https://books.wolterskluwer.co.nz/items/10076051-0001S>.
2 Cassidy, J. (2017). The International Tax Implications of New Zealand Taxation of Real
Property Owned by Non-residents (Offshore Persons). New Zealand Law
Review, 2017(2). 235-255.
3 Claus, I., Creedy, J., & Teng, J. (2012). The elasticity of taxable income in New
Zealand. Fiscal Studies. 33(3). 287-303.
4 CIR v Europa Oil. 2019. [Online]. Available through
:<https://www.victoria.ac.nz/law/research/publications/vuwlr/prev-issues/vol-33-3-4/
harley.pdf>.
5 Prebble, J., & McIntosh, H. (2015). Predication: The test for tax avoidance in New
Zealand from Newton to Ben Nevis. Victoria U. Wellington L. Rev. 46. 1011.
6 Littlewood, M. (2016). THE SUPREME COURT’S TAX CASES, 2004-
2014. Available at SSRN 2761999.
7 Commissioner of Inland Revenue v Banks - [1978] 2 NZLR 472. 2019. [Online]. Available
through: < https://home.kpmg/content/dam/kpmg/pdf/2015/05/KPMG-Tax-Submissions-Option-

account of new tenants started to pay the rent. The court held that, a single contract can be
include more than one transactions for tax purpose which may be in the nature of capital. There
should be clear distinction between the income arising from the property using for the business.
If a building is being used for two purposes, there should be separation between the origin of
income. Apart from this, different clauses in the agreement should be completed without any
breach.
Hence, it can be concluded that the dis-allowance of the expenses in the case of CIR vs
Banks, was appropriate as without registering the residential property as commercial place, no
commercial activities can be conducted8. Therefore, the expenditure for the same is not allowed
under IT Act, 2007.
Cost-Revenue-Account-Land.pdf>.
8 Commissioner of Inland Revenue v Banks - [1978] 2 NZLR 472. 2019. [Online]. Available
through: < https://home.kpmg/content/dam/kpmg/pdf/2015/05/KPMG-Tax-Submissions-Option-
Cost-Revenue-Account-Land.pdf>.

REFERENCES
Books and Journals
Cassidy, J. (2017). The International Tax Implications of New Zealand Taxation of Real
Property Owned by Non-residents (Offshore Persons). New Zealand Law Review. 2017(2).
235-255.
Claus, I., Creedy, J., & Teng, J. (2012). The elasticity of taxable income in New Zealand. Fiscal
Studies. 33(3). 287-303.
Prebble, J., & McIntosh, H. (2015). Predication: The test for tax avoidance in New Zealand from
Newton to Ben Nevis. Victoria U. Wellington L. Rev. 46. 1011.
Littlewood, M. (2016). THE SUPREME COURT’S TAX CASES, 2004-2014. Available at
SSRN 2761999.
Online
CIR v Europa Oil. 2019. [Online]. Available through
:<https://www.victoria.ac.nz/law/research/publications/vuwlr/prev-issues/vol-33-3-4/
harley.pdf>.
Commissioner of Inland Revenue v Banks - [1978] 2 NZLR 472. 2019. [Online]. Available
through: < https://home.kpmg/content/dam/kpmg/pdf/2015/05/KPMG-Tax-Submissions-
Option-Cost-Revenue-Account-Land.pdf>.
Wolters Kluwer. 2015. [Online]. Available through:
https://books.wolterskluwer.co.nz/items/10076051-0001S