Practice Statement Law Administration

PS LA 2003/8

Practical approaches to low-cost business expenses
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Contents Paragraph
1. General qualifications
2. The threshold rule
3. The sampling rule
4. More information

This practice statement is an internal ATO document, and is an instruction to ATO staff.

Taxpayers can rely on this practice statement to provide them with protection from interest and penalties in the following way. If a statement turns out to be incorrect and taxpayers underpay their tax as a result, they will not have to pay a penalty. Nor will they have to pay interest on the underpayment provided they reasonably relied on this practice statement in good faith. However, even if they don't have to pay a penalty or interest, taxpayers will have to pay the correct amount of tax provided the time limits under the law allow it.

This practice statement explains the threshold rule and the sampling rule taxpayers can apply to determine if their business expenses on low cost items are to be treated as revenue expenditure.

1. General qualifications

This practice statement does not apply to taxpayers using the simplified depreciation rules for small business, as they can claim an immediate deduction for most depreciating assets costing less than the instant asset write-off threshold amount.

This practice statement does not apply to expenditure incurred on:

establishing a business or business venture or building-up a significant store or stockpile of assets
assets held under lease, hire purchase or similar arrangement
assets leased or hired to another entity
assets included in an asset register
any asset that forms part of a collection of assets, or
trading stock or spare parts.

This practice statement also does not apply to component parts of composite assets (those items that wouldn't normally be separate assets, such as scaffolding clamps).

2. The threshold rule

Expenditure of up to $100 to acquire an asset for business use can be treated as revenue expenditure. The threshold of $100 is inclusive of any GST included in the price of the item.

Some examples of low-cost items covered under the threshold rule include:

office equipment such as hand held staplers, hole punches, manila folders, ring binders, geometry sets, stencils, calculators, tape dispensers, scissors, labelling machines, bar coding machines
catering items such as cutlery, crockery, table linen
small tools such as pliers, screwdrivers, hammers, secateurs, goggles, torches.

3. The sampling rule

Taxpayers with a low-value pool[1] may use the sampling rule to determine the proportion of the total purchases on low-cost assets that are revenue expenditure.

The sample remains valid for three years (including the income year in which the sampling takes place) provided the nature of the purchases doesn't change to the extent that the sampling becomes inaccurate. If the purchases change significantly; or if the business has merged or de-merged and the previous sample would no longer deliver reliable or consistent results, the taxpayer will need to take a new sample.

Statistical sampling will not be regarded as an alternative where the business' current systems result in reliable individual identification and accounting of low-cost items.


Purchases that cost less than $1000 and are not excluded by the general qualifications (see above) are eligible for sampling.

There are two options to calculate the sample but, whichever is used, the sample must be representative of the total population from which it has been drawn. The sampling results must be statistically valid and result in objective, reliable and conservative estimates.

The sampling results can only be applied against eligible purchases. The revenue component is assessed for immediate deductibility under the general deduction provisions. The capital component that relates to depreciating assets is dealt with under the low-value pool provisions.

The threshold rule can be used to assist with the revenue/capital expenditure decision for the sample.

Option 1 - using a percentage

The first option is to extract a representative percentage sample from eligible purchases of an income year. From the sample determine the percentage that is deemed to be revenue.

As a general rule, the ATO considers a representative sample of 10% of eligible purchases as being sufficient. It may be appropriate to use a lower or higher percentage, depending on the total number of eligible purchases.


A business recorded $100,000 worth of revenue and capital purchases in an income year.

Individual items costing $1,000 or more (totalling $15,000) were excluded from the sampling. A further $50,000 worth of trading stock was also excluded, leaving $35,000 worth of eligible purchases.

Analysing 10% of the eligible purchases showed that revenue expenditure was 40%. By applying this to the $35,000 worth of eligible purchases, the business can claim an immediate deduction of $14,000 (40% of $35,000).

Option 2 - using a time period

The second option allows the taxpayer to choose a sample comprising all eligible purchases for a given period (for example, two months) in an income year that is representative of the capital and revenue purchases for the business. From the sample determine the percentage that is deemed to be revenue.


A business had purchases for an income year totalling $2.5 million. Of this amount, $300,000 related to items that each cost $1,000 or more; and a further $1 million was trading stock. Neither of these are eligible purchases for the sampling rule, so the purchases that were eligible totalled $1.2 million.

The business identified all eligible purchases for a representative two month period in that year. In that period, 35% of the eligible purchases were shown to be revenue items.

Applying the 35% for the two month sample period, the business can claim an immediate deduction of $420,000 (35% of $1.2 million).

4. More information

For more information, see:

Capital allowances - Low-value pools - on low-value pools
Simplified depreciation rules - on simplified depreciation rules

Amendment history

Date of amendment Part Comment
28 November 2017 Contact details Updated.
31 July 2015 All Updated to new LAPS format and style.
11 September 2014 Paragraph 16 Remove paragraph 21 to 23 and replace with paragraph 22 and 23.
Paragraph 22 Remove reference to Audit statistical sampling guidelines
Diagrams at paragraphs 26 and 27 Remove reference to Audit statistical sampling guidelines
Contact details Updated
19 June 2014 Other references Remove reference to Audit statistical sampling guidelines.
9 April 2014 Contact details Updated.
18 April 2013 Paragraph 6 Omitted '$1,000' and substitute 'the instant asset write-off threshold amount'
15 November 2012 Generally Update to current corporate publication style.
Paragraphs 26 and 27 and Other references Update 'ATO's Statistical Sampling Guidelines' to 'Audit statistical sampling guidelines'.
7 December 2011 Pages 6 & 7 Updated Tax Office to ATO within diagram
15 September 2011 Contact details Updated
Paragraph 6 Add a reference to using the simplified depreciation rules.
Paragraph 22 Updated name of Guide.
21 June 2010 Contact details Updated
3 September 2007 Paragraph 6 Include reference to small business entity (applicable from 1 July 2007).
29 September 2004 Paragraph 3 Include reference to subsection 73B(14) of the ITAA 1936.

Date of Issue: 16 September 2003

Date of Effect: 1 July 2000

Under Subdivision 40-E of the Income Tax Assessment Act 1997.

File 2003/3044; 2003/4024; 2003/4027; 2003/5180; 2003/10178; 2003/11436; 2003/34733

Subject References:
Low cost items

Legislative References:
ITAA 1997 Subdivision 40-E

Business Line:  IND

PS LA 2003/8 history
  Date: Version:
  3 September 2007 Original statement
  1 July 2000 Updated statement
  15 November 2012 Updated statement
  18 April 2013 Updated statement
  19 June 2014 Updated statement
  11 September 2014 Updated statement
You are here 31 July 2015 Updated statement
This practice statement was originally published on 16 September 2003. Versions published from 3 September 2007 are available electronically - refer to the online version of the practice statement. Versions published prior to this date are not available electronically. If needed, these can be requested by emailing