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 as the simplified depreciation rules contain an instant asset write-off.
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.
A small cafe owner, who doesn't maintain an asset register or use the simplified depreciation rules, purchases spoons, coffee cups, espresso glasses and saucers every few months to maintain constant levels of stock, as these items are damaged or stolen. The owner spends around $60 every three or four months for these small items and claims the whole expense as a deduction in that income year.End of example
The $100 threshold rule includes GST in the price of the item. There's no need to separately identify any GST applicable to individual items. Division 27 of the Income Tax Assessment Act 1997 (ITAA 1997) ensures a deduction isn't available for expenditure to the extent it relates to an input tax credit or decreasing adjustment under the GST legislation.
The threshold rule doesn't mean record-retention requirements are changed. You must continue to keep all relevant records as required under income tax and other taxation laws.
For more information you can:
- 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 large business (NAT 9853)
- Capital allowances: low-cost assets – sampling rule for small and large businesses (NAT 9850)