Did you know that an immediate deduction for depreciable assets costing $300 or less is available to certain taxpayers? This deduction most commonly applies to individual taxpayers who are earning non-business income, such as salary and wage earners as well as investors.
To be entitled to the immediate deduction, four eligibility tests must be fulfilled by a taxpayer:
Test 1: The cost of the depreciating asset is $300 or less
A taxpayer under this test can claim an immediate deduction for the cost of a depreciating asset if the “cost” does not exceed $300.
For taxpayers that cannot claim a GST input tax credit, the cost of the asset includes the amount of GST included in the purchase price.
If the asset is held by the taxpayer jointly with others, then their interest in the asset is treated as the relevant depreciating asset. If the cost of their interest in the asset is $300 or less, then they can claim the immediate deduction, even though the depreciating asset costs more than $300.
Peter, Clem and David jointly own a rental property in the proportions of 50%, 25% and 25%. They purchase a fridge to replace an existing one damaged by tenants. Based on their respective interests, they contribute $400, $200 and $200 to acquire the fridge. Clem and David can claim an immediate deduction because the cost of their interest does not exceed $300 but Peter can’t.
Test 2: You use the asset mainly for the purpose of producing assessable income that is not income from carrying on a business
This test means that taxpayers who use the asset in a business which they carry on would not be entitled to an immediate deduction. Salary and wage earners and investors deriving “non-business” income would be typically eligible instead.
Examples of assets typically used to produce non-business income include:
- a briefcase purchased by an employee
- tools of trade used by an employee apprentice
- freestanding furniture purchased by a landlord
- a calculator used to manage an investment portfolio.
To claim the immediate deduction, a taxpayer must use the depreciating asset more than 50% of the time to produce non-business assessable income.
Further, if the taxpayer does not use the asset wholly to produce income during the income year, their deduction is reduced to the extent that it is not used.
Rob buys a calculator for $150, which he uses 40% of the time for business and 60% of the time for a share portfolio. As it is used more than 50% for producing non-business income, he can claim an immediate deduction. If Rob used his calculator 40% of the time for private purposes (not business), his deduction would be reduced by 40% to reflect his private use.
Test 3: The asset is not part of a set of assets that you start to hold during the income year that costs more than $300
It is necessary to determine on a case-by-case basis if items form a set, which generally is when they are:
- interdependent on each other
- marketed as a set, or
- designed and intended to be used together.
Example where an asset is part of a set
Louise, a sales manager, hears about a series of six progressive learning CDs. The CDs are marketed as a set and are designed to be used together. However, the six CDs cost $360. Louise purchases the CDs individually for $60 each and buys one each week for six weeks in the same income year.
Conclusion: Although the cost of each CD is less than $300, Louise cannot claim an immediate deduction for the CDs because they are a set that costs more than $300.
Example where asset is not part of a set
Susan, an employee, buys a range of tools for her toolkit for work – comprising a spanner, a box set of screwdrivers and a hammer. Each item costs $300 or less.
Conclusion: While these tools add to a toolkit, they are not a set. It would make no difference if Susan each at the same time and from the same supplier. An immediate deduction is available for all the items, including the screwdrivers. Despite the these being marketed and used as set, the deduction is available because their cost is less than $300.
Test 4: The asset is not one of a number of identical or substantially identical assets that you start to hold during an income year that together costs more than $300
Taxpayers under this test are required to determine whether the asset is “identical” or “substantially identical” (see table) to other assets that they acquire in the same income year and, if so, whether the total cost of the assets is more than $300.
|Is it identical?|
|Identical items||Items that are the same in all respects|
|Substantially identical items||Items that are the same in most respects even though there may be some incidental differences such as colour, shape, function, texture, composition, brand and design.|
Example of identical/substantially identical assets
Benjamin buys eight cane chairs for his rental property’s patio. They are the same except for their colour – four are beige and four are green. Each chair costs $120.
Conclusion: Benjamin cannot claim an immediate deduction for the cost of each individual chair because the chairs are “substantially identical” (with the only differences being their colour) and their total cost exceeds $300.
Example of not identical/substantially identical
Lauren buys a canvas chair, a high back wooden chair, and a leather executive chair.
Conclusion: While these are all chairs, they are not “identical” or “substantially identical”. The cost of each of these chairs can be claimed as an immediate deduction if it is $300 or less.
Consult this office for more information on whether you can claim the immediate $300 deduction. If you are ineligible, we can assist in maximising the deduction for depreciable assets that you have purchased that are used to earn income.