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  • Capital allowances: low-cost assets – threshold rule for small business

    The threshold rule allows you to claim an immediate deduction for most business expenditure of $100 or less to buy tangible assets.

    The rule is meant to help you save time because you don't need to decide whether each purchase is of a revenue nature (and so immediately deductible) or of a capital nature (usually written-off over time).

    Purchases of a revenue nature normally mean that you expect 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.

    If you are using the simplified depreciation rules, generally you won't use the threshold rule that applies for tax administrative purposes, to low-cost items of $100 or less.

    Under the simplified depreciation rules, you:

    • immediately deduct the business portion of each depreciating asset that was first used or installed ready for use up to  
      • $30,000 from 7.30pm (AEDT) on 2 April 2019 until 30 June 2020
      • $25,000 from 20 January 2019 until before 7.30pm (AEDT) on 2 April 2019
      • $20,000 before 29 January 2019

    The threshold reverts to $1,000 from 1 July 2020.

    • pool the business portion of most other depreciating assets that cost more than the relevant threshold in a small business asset pool, and claim a       
      • 15% deduction in the first year (regardless of when you purchased or acquired them during the year)
      • 30% deduction each year after the first year
    • write-off the balance of your small business pool at the end of an income year if the balance, before applying any other depreciation deduction, is less than the relevant threshold.

    You can use the simplified depreciation rules if you are a small business entity (2007–08 and later years).

    You must use the simplified depreciation rules for income years where you were in the simplified tax system (2006–07 and earlier years).

    See also:

    How the threshold rule works

    If you aren't using the simplified depreciation rules and you spend $100 or less, including any GST, 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 doesn't apply to expenditure on:

    • establishing a business or business venture or building-up a significant store or stockpile of assets
    • assets held by you under a lease, hire purchase or similar arrangement
    • assets acquired by you 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 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)
    • trading stock or spare parts.

    This rule doesn't 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 wouldn't normally be a separate asset where they're 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, are:

    • office equipment costing $100 or less, including handheld 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
    • tools used by primary producers costing $100 or less including secateurs and pliers.
      Last modified: 26 Sep 2019QC 17149