The opportunity for business owners and landlords to take a full tax deduction for new assets costing $5,000 or less is rapidly disappearing.
The temporary increase in the low-value asset threshold from $500 to $5,000 will end on 16 March 2021, at which time the threshold will reduce to $1,000.
The Government introduced the temporary increase as part of their Covid support measures back in March 2020. The increase resulted in taxpayers being able to claim a tax deduction for asset purchases of $5,000 or less. Previously, purchases over $500 had to be capitalised, and if depreciable, expensed over the life of the asset. In the case of non-depreciable items, such as building improvements to a residential rental property, no tax deduction was allowed.
While the low-value asset threshold applies to all taxpayers, it is particularly relevant for residential property landlords considering undertaking improvements to bring their property in line with the Healthy Homes Standards. If this is you, look to undertake the improvements before 17 March 2021 as the purchase of certain items to meet the new Healthy Homes Standards, for example particular types of heat pumps, fixed electric panel heaters, and extractor fans installed through an existing window, which cost $5,000 or less are now able to be fully expensed if paid for on or before 16 March 2021.
Don’t leave the improvements until after 16 March 2021 when the deduction threshold drops down to a meagre $1,000.
Contact your Hayes Knight advisor if you wish to discuss which type of assets will be fully deductible.