Economic rate of depreciation for certain aircraft and motor vehicles

Sections EE 25D(2)(cb) and EE 25D (3) of the Income Tax Act 2004

The rule covering the setting of depreciation rates for certain aircraft and motor vehicles has been clarified.

The changes were necessary because they arguably applied to a broader class of motor vehicles and aircraft than was intended. These amendments ensure that only motor vehicles and aircraft that previously had residual values above 13.5 percent of cost can set their depreciation rates under section EE 25D.

Section EE 25D(2)(cb) excludes aircraft used for topdressing or spraying. It is now clear that depreciation rates for aircraft used for these purposes is set under section EE 25B.

Section EE 25D(3) clarifies that the type of motor vehicle that this section applies to are vehicles designed exclusively or mainly to carry people, with seats for no more than 1 people.

The rules apply from the 2005-06 and later income years.

As a point of clarification, the Commissioner remains of the view that the estimated useful life of motor vehicles where the depreciation rate is set under section EE 25D remains five years. For aircraft where the depreciation rate is set under section EE 25D the estimated useful life remains 15 years. The clarification is necessary because estimated useful life is important when taxpayers are having to determine whether a lease is a finance or operating lease.