Non-depreciable assets

What it means

Non-depreciable assets are assets that are not depreciated because they do not wear out through use or because the law excludes depreciation. They include mainly land, works of art, collections, items made of precious metals and assets under construction until they are put into use.

Such assets stay on the balance sheet at acquisition cost for as long as the company owns them. Unlike buildings or machinery, their value is not spread into expenses through depreciation. It reaches expenses only on sale or disposal, as a net book value equal to the acquisition cost.

Tax and accounting rules largely coincide here. The Income Tax Act expressly lists assets that are not depreciated for tax purposes, and the accounting procedures specify what is not depreciated in the books. For land under a building, its cost must always be separated from the cost of the structure, which is depreciated.

How it works in practice

When buying property with land, the purchase price is split between land and building, ideally on the basis of an expert valuation or figures in the contract. If the whole price is mistakenly allocated to the building, the company depreciates the land as well, which leads to additional tax in an audit.

The value of a non-depreciable asset can fall, for example if land loses value after a zoning change or a work of art declines on the market. An impairment allowance is then recognised on the basis of an impairment test, reflecting the temporary reduction in value.

Works of art bought for an office or meeting room are recorded as assets but not depreciated, so buying them does not reduce the tax base. If they form part of a building, such as a mural or a sculpture on the façade, they are assessed together with the building and depreciated with it.

What to watch out for

An impairment allowance on non-depreciable assets is generally not tax-deductible, except in special cases set by law. It is recognised in the books so that the statements give a true picture, but for tax it is added back to the tax base, creating a difference between accounting and tax profit.

Long-standing assets under construction need monitoring. If the company has halted a project and will not finish it, it should consider impairment or a write-off. Leaving a forgotten project on the balance sheet for years overstates assets and distorts the picture of the company's financial position.