The threshold rule allows a business not using the simplified depreciation rules to claim an immediate deduction for most business expenditure of $100 or less to buy tangible assets.
The rule is meant to help businesses save time because they do not need to decide whether each purchase is of a revenue nature (and so immediately deductible) or of a capital nature (which is usually written-off over time).
Purchases of a revenue nature normally mean that a business expects the item to be consumed, damaged or lost within a short period of time while purchases of a capital nature generally result in the item or asset being used over a longer period.
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If you are using the simplified depreciation rules you generally will not use the threshold rule. Under the simplified depreciation rules you can claim an immediate deduction for most depreciating assets which cost less than $1,000 and pool most other depreciating assets.
You can use the simplified depreciation rules if you are a small business entity (2007-08 and later income years).
You must use the simplified depreciation rules for income years where you were in the simplified tax system (2006-07 and earlier income years).
For more information see www.ato.gov/SBconcessions.
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If you spend $100 or less to acquire a tangible asset in the ordinary course of carrying on your business you can assume it to be of a revenue nature for income tax purposes.
This rule does not apply to expenditure on:
- establishing a business or business venture or building-up a significant store or stockpile of assets
- assets you hold under a lease, hire purchase or similar arrangement
- assets you acquired for lease or hire to (or that will otherwise be used by) another entity
- assets included in an asset register you maintain in a manner consistent with reporting requirements under generally accepted Australian accounting standards
- any asset that forms part of a collection of assets that is dealt with commercially as a collection (for example, by being sold and leased-back as a means of raising finance for the business), and
- trading stock or spare parts.
This rule does not apply separately to expenditure on assets that are part of another composite asset. In this case, you must test expenditure on the composite asset. Items would not normally be a separate asset where they are not functional on their own (for example, scaffolding clamps).
Some examples of low cost items that fall within the threshold rule, subject to the qualifications listed above, include:
- office equipment costing $100 or less - including hand held staplers, hole punches, manila folders, ring binders, geometry sets, stencils, calculators, tape dispensers, scissors, labelling machines, document holders, and bar coding machines
- catering items costing $100 or less - including cutlery, saucers, cups, and table linen
- tradesperson's small hand tools costing $100 or less - such as pliers, screwdrivers, and hammers, and
- tools used by primary producers costing $100 or less - including secateurs and pliers.
Example
A large mining business with an asset register buys a large quantity of small items each year to use in various sections of the enterprise. The items range from goggles and torches to small hand tools. These items cost $100 or less and are not recorded on the asset register. The items are claimed as business deductions in the year of purchase.
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The $100 threshold rule includes GST included in the price of the item. There is no need to separately identify any GST applicable to individual items. However, Division 27 of the Income Tax Assessment Act 1997 (ITAA 1997) ensures that a deduction is not available for expenditure to the extent it relates to an input tax credit or decreasing adjustment under the GST legislation.
The threshold rule does not mean record retention requirements are changed. You must continue to keep all relevant records as required under the income tax and other taxation laws.
PS LA 2003/08 - Taxation treatment of expenditure on low cost items for taxpayers carrying on a business.
Capital allowances: low-cost assets - threshold rule for small business (NAT 9852)
Capital allowances: low-cost assets - sampling rule for small business (NAT 9771)
Capital allowances: low-cost assets - sampling rule for large business (NAT 9850)
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For more information:
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Last Modified: Wednesday, 13 August 2008