Depreciation Treatment for Buildings with Prefabricated Stressed-skin Insulation Panels ED0189

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1 Depreciation Treatment for Buildings with Prefabricated Stressed-skin Insulation Panels ED December 2016 Chartered Accountants Australia and New Zealand Level 1, Carlaw Park, Nicholls Lane, Parnell, PO Box 3334, Shortland Street, Auckland 1140, New Zealand P charteredaccountantsanz.com Chartered Accountants Australia and New Zealand ABN (CA ANZ). Formed in Australia. Members of CA ANZ are not liable for the debts and liabilities of CA ANZ.

2 7 December 2016 Team Manager Technical Services Office of the Chief Tax Counsel National Office Inland Revenue Department PO Box 2198 Wellington 6140 Dear Rob Depreciation Treatment for Buildings with Prefabricated Stressed-Skin Insulation Panels ED0189 Thank you for the opportunity to comment on this item. This Exposure Draft has been issued in response to taxpayers feedback that QB 15/12 is difficult to understand and apply. The objective of this item is to provide greater clarity on the meaning of the description, buildings with prefabricated stressed-skin insulation panels (the description) in the Commissioner s Table of Depreciation Rates. We have read and considered this Exposure Draft. In our view, the item does not meet its objectives. We suggest further explanation of the discussion in paragraphs 7, 8, 11 and 14. We also suggest including examples, illustrations or diagrams to help readers understand the Commissioner s view. Definition of with Paragraph 7 discusses the definition of with in the description. It states that with can be defined as either accompanied by or material used for a purpose. The discussion concludes that it is the Commissioner s view that, to fall within the description, a building will need either to be constructed solely of sandwich panels; or constructed using other materials but accompanied by sandwich panels.

3 The rationale for this conclusion appears to be explained in paragraph 8; however, we consider the explanation is unclear. We refer to our submission on the 2015 Exposure Draft to QB 15/12, ED0181. As stated in this submission, our view is that the Commissioner s interpretation is too narrow. In our view, with in the description includes prefabricated stressed-skin insulation panels that are used for a particular purpose in the building. The test is not limited to one of construction. As the item notes, the asset categories contained in the Commissioner s Table of Depreciation Rates under Buildings and Structures include buildings that are described either by the structural / construction method used, or by the activity the structure houses. In our view, the separate descriptions are not mutually exclusive. Furthermore, prefabricated stressed-skin panels are often used in industry-specific buildings such as food processing factories and cool stores because of the particular attributes of the panels (e.g. thermal control, water-tightness). In these cases the building s function or purpose is the reason for the inclusion of the panels. In our view, in such cases, the building is one with prefabricated stressed-skin insulation panels. We consider that the item would be more useful and more closely reflect commercial practice if this category is added to the definition. Without prejudice to our comments above, if our view is not accepted, we consider that the discussion in paragraphs 7 and 8 should be expanded and clarified. As currently drafted, the rationale for the Commissioner s view is unclear. Also, the statements in paragraph 9 should be redrafted to highlight its relevance. Shade-roof structure In our view, the discussion in paragraph 11 about shade-roof structures does not give sufficient guidance to readers. The term is referred to in the context of a cool store. In the absence of further discussion, this implies that only a cool store can have a shade-roof structure. We assume this is not the case. We suggest examples, diagrams and pictures be included. Exterior cladding using sandwich panels The Commissioner will accept that a building is a building with prefabricated stressed-skin insulation panels if the exterior cladding of the building is made from mixed construction materials, and no less than 75% of the exterior cladding is predominantly made up of sandwich panels. Paragraph 14 of the Exposure Draft states the Commissioner s view. However, there is no explanation of how the 75% threshold has been determined. We raised this issue in our 2015 submission on ED0181. We understand that the Commissioner sought advice on the matter and accepted this advice. It would be helpful if this aspect was included in the discussion in paragraph 14. This would minimise the implication that the threshold is arbitrary.

4 Paragraph 14 states that the roof of the building is ignored when calculating the 75% threshold; only the external side walls are taken into account. We consider that it would be clearer if this was indicated in the second bullet point in paragraph 2 and in the heading to paragraphs by referring to the wall of the building. In our view, it would be useful if further guidance is provided on how the 75% threshold is assessed. For example, does the Commissioner require an independent valuation that attests to the proportion of sandwich panels and other construction materials? We attach two photos of buildings constructed of sandwich panels and other materials. We have highlighted in the photos the uncertainty / difficulty that the 75% threshold raises; in particular, when the same materials are used for both the roof and the wall of the building. We do not believe that paragraph 14 is helpful in determining whether these buildings satisfy the 75% test in these circumstances. It would be useful if, for example, the discussion set out the criteria for determining whether the sandwich panels form part of the wall or the roof of the building. We suggest including diagrams, pictures, and examples on how the assessment would be made. We are happy to discuss our submission with you. Yours sincerely Lindsay Ng Senior Tax Advocate DDI: (09) E: lindsay.ng@charteredaccountantsanz.com

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