As an entrepreneur (and someone who enjoys the fruits of their labour), you are entitled to claim depreciation on business assets that form part of your business assets. However, you may no longer claim depreciation on buildings once their book value is equal to or lower than their residual value.
Land value
The floor value is equal to:
- the WOZ value of the building,
- unless the building is for the owner’s own use: in that case, the base value is equal to 50% of the WOZ value.
In the Coalition agreement The Rutte III Cabinet has announced that this exemption for business owners under corporation tax will be abolished with effect from 1 January 2019. Under corporation tax, the minimum value of a building will then, in all cases, be equal to the WOZ value.
Building
The Act explicitly stipulates that the following are treated as a single asset for depreciation purposes:
- the building;
- the foundations of the building and;
- the appurtenances of the building (including the land on which these appurtenances stand).
Fixtures are not included in the valuation of the building. However, these fixtures must be capable of being regarded as business assets in their own right and must be capable of being removed without causing significant damage to the building. The WOZ Act also provides for an exemption for fixtures. Consequently, the value of plant and equipment must not be included in the WOZ value of the building.
What forms part of the building?
In view of the depreciation restriction, it is important to capitalise items that do not form part of the building separately. You can then depreciate them, even though the book value of your buildings has reached the minimum value. This will become even more important for businesses subject to corporation tax once the Rutte III government implements its plans.
At the Gelderland District Court I recently handled a case in which the book value of an agricultural business’s buildings was equal to their land value. Consequently, no further depreciation may be claimed. However, the business owner has classified a number of items as separate business assets. These include a water source, a slurry silo, a silage storage facility, a slurry storage area and a paved yard. Depreciation is being claimed on these business assets.
The court recognises only the water source (this asset consists of a pump and a water softening system) as a separate asset, to which the depreciation restriction does not apply. The court regards this asset as a piece of plant.
The remaining business assets are appurtenant to the agricultural buildings. They are situated next to the stables, are in use and serve a purpose in relation to them. The paved yard is appurtenant because the farm buildings must be accessible for the business to operate. The court does not agree with the business owner’s assertion that the independent business assets serve the production process; they do not serve the buildings.