Changes to the low value asset rules that came into effect on 26 March 2020 as part of the Governments business continuity package.

On 26 March 2020 amendments were made to the Income Tax Act 2007 that will allow taxpayers to deduct the full cost of more low-value assets in the year of purchase.

The threshold has been temporarily increased, for 12 months, from assets that cost less than $500 to assets that cost up to $5,000. The threshold will then permanently increase from the $500 threshold to $1,000 for assets purchased from 17 March 2021 onwards.

How Does It Work

From 17 March 2020 to 17 March 2021 the ability for landlords to claim immediate deductions for low value assets up to the value of $5,000 applies.

This means landlords will be able to deduct the full cost of more low-value assets in the year they purchased them, rather than having to spread the cost over the life of the asset through Depreciation. In a lot of cases, this will mean that some expenditure, for example on insulation, will become deductible in full, rather than not at all.

$5,000 Threshold

The $5,000 threshold applies for assets purchased on or after 17 March 2020 but before 17 March 2021.

$1,000 Threshold

The $1,000 threshold will then apply for assets purchased on or after 17 March 2021.

Compulsory Healthy Homes Standards

The healthy homes standards introduced specific and minimum standards for heating, insulation, ventilation, moisture ingress and drainage, and draught stopping in rental properties. Landlords have until 1 July 2024 at the latest to comply with these standards, with most landlords having to comply a lot sooner.

With the introduction of the new temporary $5,000 threshold, now is a good time to think about getting the required work completed on your investment properties such as installing heat pumps or insulation. This is because you will be able to receive a full tax deduction for the assets purchased (as long as you spend less than $5,000) rather than depreciation or no deduction at all.

Summary

The introduction of this new temporary low value asset threshold of $5,000 is an excellent opportunity for landlords to obtain a full deduction for expenditure incurred in meeting the healthy homes standard which may otherwise not have been available.

If you have any questions about may or may not be deductible, please contact your normal Property Tax Returns advisor or email us.