How Can Low Value Assets Threshold Save You Tax?

If you are thinking of making improvements to your property or buying business assets, then take advantage of recent changes to the low value asset threshold. The Government has temporarily increased the low value asset threshold to $5,000 for writing off your business assets (see table).

Date of purchase

Low Value Asset Threshold

(excluding GST, if GST registered)

Prior to 17 March 2020

$500

 

17 March 2020 to 16 March 2021

$5,000

17 March 2021 onwards

$1,000

 

For instance, if you bought a computer and desk for less than $5,000 you could claim the cost as an expense straight away instead of gradually depreciating for 3-5 years.

This first example may not seem like a lot of savings, but consider the second example. If you owned a residential rental property, and you installed a heat pump, insulated the floors and installed a skylight on three separate occasions, each costing under $5,000. Before 17 March 2020. the heat pump would be depreciable but not the insulation nor the skylight as they were considered part of the building proper. Between 17 March 2020 and 16 March 2021, you could claim a tax deduction for all three.

Be mindful of these limitations. If you are buying multiple assets at once, keep the whole order under $5,000. If you buy 20 chairs costing $251, the total cost is $5,020 and you have to depreciate the chairs. If multiple invoices contribute to the one asset, then you may not get the deduction. For instance, you add on an extension and pay 3 different tradies $4,900, the cost of the extension is $14,700. Also be aware of residential rental loss ring-fencing.

If you're unsure if you can claim the low value asset deduction, give us a call at JDW to discuss before you undertake the spending.

- Serena Irving

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The information and examples given in this article are general in nature and are not personal investment, financial or tax advice. We recommend that you contact the author or another professional advisor for advice that is specific to your needs. Serena Irving is a director in JDW Chartered Accountants Limited, Ellerslie, Auckland. JDW is a professional team of qualified accountants, auditors, business consultants, tax advisors, trust and business valuation specialists.