With the significant cash flow impacts of the Covid-19 pandemic, one of the new measures introduced to give businesses some tax relief is the change to depreciation and capitalisation rules for low value assets. Any fixed asset purchased from the 17th of March 2020 to the 16th of March 2021 that has a value of less than $5,000 is able to be treated as fully deductible for tax purposes rather than being capitalized and depreciated over a number of years. From 17th March 2021 the threshold for deductibility will be reduced down to $1,000, an increase on the previous threshold of $500.
These changes give businesses an incentive to invest in assets before the 16th of March 2021 if they are below $5,000 in value to gain the tax deduction available. It is important to note the following when purchasing multiple assets or if purchasing an asset that forms part of an existing asset:
- Where a number of assets with the same depreciation rate are purchased at the same time, the $5,000 threshold applies to the group of assets, not each individual item. A common example of this may be the bulk purchase of office equipment to allow employees to work from home.
- If the asset purchased costs under $5,000 but forms part of another existing fixed asset, the immediate deduction is not available and the asset must be capitalised as part of the existing asset. An example of this may be the cost of an addition to an existing vehicle, such as a dog box for farmers.
The changes also re-introduce depreciation deductions for newly acquired non-residential buildings for the 2021 and subsequent income years. The definition of non-residential includes commercial and industrial buildings, motels, and hotels, but not dwellings including dwellings that provide short-term accommodation such as Airbnb. The depreciation rate will be 2% diminishing value or 1.5% straight line.