As part of the measures introduced by the Government to assist with cash flow and to encourage spending, the low-value asset threshold has been temporarily increased to $5,000 from $500 for the period 17 March 2020 to 16 March 2021.
Previously, assets costing more than $500 had to be capitalised, included in the fixed asset register, and depreciated over the asset’s useful life. This value has been temporarily raised to $5,000 which means that the expenditure can be expensed, and a tax deduction is taken.
Company A purchased a piece of equipment for $5,000. This piece of equipment has a depreciation rate of 20%.
Pre 17 March 2020 this equipment would have been capitalized and depreciated. The depreciation expense would have been $1,000 ($5,000 * 20%) and the tax deduction would have been $280 ($1,000 * 28% which is the company tax rate).
Post 17 March 2020 and up until 16 March 2021 we can expense this piece of equipment straight to the Profit and Loss account where the tax deduction will be $1,400 ($5,000 * 28% which is the company tax rate).
The threshold will be permanently increased to $1,000 from the 17th March 2021.
Please contact us should you have any queries.