The Government passed legislation in March 2020 that temporarily increased the low-value asset threshold for depreciation from $500 to $5,000.
This allows businesses (including landlords) to deduct the full cost of their business assets with a value of less than $5,000 in the year they were purchased, instead of having to spread the cost over the life of the asset.
The low-value threshold was increased to allow the immediate expensing of assets purchased on or after 17 March 2020 for less than $5,000. The threshold has only been increased to $5,000 until 16 March 2021 in an effort to encourage businesspeople to keep investing in their businesses throughout the COVID-19 outbreak.
For assets purchased on or after 17 March 2021, this threshold will be permanently increased from $500 to $1,000.
How does this benefit Landlords when meeting the healthy homes standards?
Landlords are facing additional costs as many are required to purchase and install heaters and extraction fans to meet the heating and ventilation healthy homes standards. In the past, these costs would be depreciated over the life of the item, but for a short period of time they can be claimed in full, including the delivery and installation costs, providing the total cost is under $5,000.
- A landlord purchases a heat pump, including delivery and installation costs, before 17 March 2021 and the total invoice is under $5,000. The landlord will be able to expense the entire item in the year it was purchased.
- A landlord purchases a heat pump, including delivery and installation costs, in November 2020 and the invoice is $4,000. The landlord then purchases two extraction fans, including installation, from a different supplier in December 2020 for $1,200. Although the combined purchases are more than $5,000, they are separate purchases and each under $5,000, therefore they both meet the low-value threshold.
- A landlord purchases a heat pump and extraction fans, including delivery and installation, from the same supplier on the same day and the purchases are on the same invoice which exceeds $5,000. This purchase does not meet the criteria and will not qualify for the low-value asset depreciation.
If you are a landlord and need to purchase items to meet the healthy home standards, or you have other items that are required for your rental property, consider bringing your expenditure forward to take advantage of this policy. You will need to ensure that the purchase is made in the 12-month period from 17 March 2020 to 16 March 2021, and providing that the cost for each purchase is less than $5,000, you can apply this policy multiple times.
Harcourts recommends seeking independent advice from your Accountant
This article is featured in Harcourts' Property Management Focus Newsletter, Issue 10 2020