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COMMENT: Don’t miss your $5,000 deductions!

Residential landlords, take note: the clock is ticking on the Covid-19 related increase to the low value asset write-off threshold, writes property accountant Anthony Appleton-Tattersall.*

Thursday, September 3rd 2020, 8:30AM 12 Comments

Anthony Appleton-Tattersall

It has been a long six months since the government released its emergency economic stimulus policies in response to the then-impending threat of Covid-19 in mid-March.

While some policies, such as the wage subsidy, received significant ongoing media attention, others were a flash in the pan.

Those too busy to read financial blogs in March may have missed or forgotten an important one for residential landlords.

The low-value asset write-off threshold was increased from $500 to a very generous $5,000. But only until 16 March 2021, so the opportunity to utilise it is halfway gone already.

The low-value asset write-off threshold, also known as a “de minimis” write-off, exists to simplify accounting and tax obligations.

Assets that endure for several years can’t be claimed in full right away; instead they’re depreciated over their useful life.

But the “de minimis” rules reduce compliance costs by allowing immediate deduction for the cheap stuff, like a ladder or a rubbish bin.

And with the threshold raised to $5,000 a lot of opportunity opens - particularly with the healthy homes deadlines looming.

New minimum standards for heating, and kitchen/bathroom ventilation mean big costs which would been depreciated over many years but can now be claimed in full – as long as they’re under $5,000 including installation costs, and not purchased in a group with other assets where the total spend is over $5,000.

This write-off is not limited to once per entity or once per property. It applies to all low-value assets a business purchases during the year.

If a property needs a heat pump at $3,000, a rangehood at $900, both can be claimed.

If a landlord owns multiple properties and puts a heat pump in each this can be claimed too, as long as they are purchased on different days or from different suppliers. That’s because if all were purchased together they would likely exceed the $5,000 threshold and require capitalisation.

Benefits are even higher for those setting up a new furnished property, where beds, couches, artwork, televisions, washing machines and various other items can all be claimed in full.

However, it’s important to note that the reduction of taxable income should never be the aim of any business. Spending money for the purposes of getting a tax deduction is generally very poor practice.

Income tax takes up to 33% of profits, which leaves the business with at least 67%... Meanwhile, the money a business spends is gone in its entirety!

The increased “de minimis” threshold should be seen as an opportunity to bring future spending forward and take advantage of friendly tax policy during a time of necessary capital expenditures.

A final note: from 17 March 2021 onwards, the temporary $5,000 threshold is removed, but the threshold is permanently raised to $1,000.

The following is a quick summary of where the $5,000 “de minimis” threshold applies:

• Bought between 17 March 2020 and 16 March 2021
• Total cost of under $5,000 including delivery and installation costs
• Available multiple times – applies to each individual asset purchase
• Not purchased on the same day from the same supplier as other items with the same depreciation rate
• A distinct asset has been purchased (ie: excludes materials to add a wall or build a deck)

*Anthony Appleton-Tattersall operates AAT Accounting Services (at www.aataccounting.co.nz), a specialist accounting firm for the property sector.

Tags: accountants compliance coronavirus Covid-19 investment advice landlords tax

« COMMENT: Real estate possible at level threeCOMMENT: Furore over Healthy Homes story misleading »

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Comments from our readers

On 3 September 2020 at 11:36 am Ping2020 said:
Great to know !
What if the heat pump, ventilation, installation are all arranged and done by the same company under $5,000 in total and included in 1 invoice for all.
Can they still be claimed ?
On 3 September 2020 at 1:25 pm WellyLL said:
Yep
On 4 September 2020 at 1:35 pm Anthonyacat said:
Response to Ping2020:
If under $5,000 in total, yes these are absolutely claimable under the current $5k threshold.

If the total invoice were over $5,000 (ie, heat pump $3k and ventilation $4k) the answer would be no because Ventilation and Heat Pumps both have the same depreciation rates (20% DV or 13.5% SL). You would have to capitalise these and depreciate over 7+ years.
Buying them from different suppliers or the same supplier on different dates would allow the claim.
On 14 October 2020 at 10:43 am takezo said:
Thanks for this tip. I'm considering renovating my rental property bathroom. If I install a shower for less than 5000, is this deductible?

Similarly for installation of new kitchen cabinetry?
On 14 October 2020 at 1:34 pm Bulky said:
Thanks for that info. What if the asset exceeds 5k? Can the first 5k be deductible?
On 14 October 2020 at 6:58 pm Anthonyacat said:
Response to Takezo: I'm afraid not. Both showers and kitchen cabinetry are considered part of the house and not assets in their own right. However, if you've owned the rental property for a while these would probably come under fully deductible repairs and maintenance - best to check with your accountant to be sure.
On 14 October 2020 at 6:59 pm Anthonyacat said:
Response to Bulky: Afraid not. If over $5k the asset must be capitalised in full (including installation/delivery costs) and depreciated at the rates acceptable to IRD for that particular asset.
On 10 November 2020 at 3:03 pm james19 said:
Can the 5k deduction rule be applied on items which are used on shared basis? For example, If I purchase a new phone, say 2k, and use it privately, but also use it when managing my rentals, I think I can claim half of the cost of new phone (1k) as rental expense over years. Can I claim this 1k fully this year under 5k deduction rule?
On 16 November 2020 at 1:55 am Anthony Appleton-Tattersall said:
Response to James19: That's a good question! My thoughts are that there's no reason why not! Though the whole asset would need to be under $5k, not just the private portion - ie, you can't claim $3,000 for a $30,000 car that's 10% business related.
Note that in some cases, private use of a business mobile phone is considered incidental and a claim can be made for 100%. But that's something to discuss with your accountant.
On 19 November 2020 at 9:28 pm Vicky Harlick said:
Hi Anthony, I have looked through the IRD website for the relevant links to this information and all I can find is information stating this deprecation increase is for commercial and industrial buildings only and excludes residential buildings . Can you please point me in the right direction of where to find the relevant information from IRD around the changes so I can work from that. Thank you
On 2 March 2021 at 8:35 am denise chisnall said:
Hi, I have two rentals, both requiring repainting this year. Can I purchase a sprayer to use for this and claim on the under $5000 rule.
On 11 June 2021 at 3:03 pm EagleEyes086 said:
I have an interesting one. I paid a deposit on a heatpump well before March 16, for delivery before March 16, but the supplier failed to install before that date. In GST terms, because the deposit is made, Time of supply is when I paid the deposit. Because I don't have to capitalise the item, and claim depreciation, the depreciation rules don'w apply (ready to use....)? And I can deduct in my 2021 year return?

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Last updated: 19 July 2021 9:09am

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