Attention Landlords and Business Owners
Are you aware of the $5,000 minor capital expenditure initiative that is available to you as part of the Government’s COVID-19 stimulus package? If you are needing to upgrade heating and insulation to meet healthy homes standards, or invest in other capital assets that are under this current threshold, you may wish to take advantage of this timing.
This incentive is being delivered in two stages:
- Assets costing up to NZ$5,000 will be eligible for an immediate write-off for the 2020/21 income year, if they are acquired on or after 17 March 2020 but before 17 March 2021. This allows you to deduct the full cost of your business assets with a value of less than $5,000 instead of having to depreciate it over the life of the asset.
- From the 17th March 2021, the threshold will be permanently set at $1,000.
Things to watch out for
- Pooling of assets
In the application of these requirements, there may be an aggregation of some purchases. All items acquired at the same time from the same supplier, and which would be subject to the same depreciation rate, are treated as one purchase. However, other purchases from a single supplier may still be treated as low-value assets where the total cost of all of them does not exceed the relevant threshold. Therefore, be careful not to accidentally make individual purchases of similar items over the threshold amount on the same day and from the same supplier, as this would not apply for an immediate write-off. That restriction might apply, for example, to the purchase of a set of tables and chairs where the total cost exceeds the threshold but the cost for each individual item does not. However, if the entire purchase costs less than $5000, treatment as a low-value item continues to be available. Landlords who own multiple properties need to be particularly careful not to purchase many items of the same nature at once, not to exceed $5,000 per purchase.
- Assets of a separate nature
To be eligible for treatment as a low-value item, the asset must be of a separate nature. It cannot be an asset that was or will become part of another asset that is depreciable property. For example, the new wall, or the new insulation is clearly part of the depreciable property that already exists (i.e. the building) and is therefore capitalised as part of the building. Accordingly, no immediate deduction is permitted because the new wall forms part of the building. The residential building depreciation rate of nil will apply.
If you would like any further advice on this topic and how this may affect your situation, please do not hesitate to contact the team at ABA.