Low-value asset depreciation

Peter asks:
(updated on Tuesday, June 02nd 2020)

The low-value asset threshold for depreciation has recently been increased to $5,000, (https://www.ird.govt.nz/covid-19/tax-relief/depreciation), which allows us to immediately write off any single asset (except land or building) with a value of less than $5,000. It will only apply to assets acquired up to 16 March 2021. The threshold will be $1000 after that date. Have I got that right?

We are to build a new 6-unit apartments during this period. I would know how to depreciate my depreciable items (e.g., carpets, ovens, dish washers, heat pumps, clothes lines …) as normal if there was no new registration.

I could ignore the new rule to continue to depreciate them as normal, however, why notappreciating the government’s courtesy if I know how to do it? Please advise and guide us how to use the special treatment. For example, the total cost for heat pumps is $12,600 for 6 units ($2,100/each), and we can claim one off expense of $12,600 for 2021 tax year? Is there any problem?

Our Experts Answer:

Firstly, yes - you have the summation of the new low-value asset write-off rule correct. The threshold stands at $5,000 for assets acquired on or after 17 March 2020 until 16 March 2021, dropping to $1,000 from 17 March 2021.

In relation to the heat pumps, unfortunately you cannot write-off $12,600 for six units. This is because in order for the low-value asset rule to apply, the total cost of acquiring a number of identical assets from the same supplier at the same time has to be less than $5,000.

Put another way, if you acquire depreciable assets at the same time from the same supplier and the same depreciation rate would apply if they were all treated as items of depreciable property, then you can only write off your cost if the total cost of acquiring all items is less than $5,000.

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