As we draw closer to the end of the New Zealand financial year and you start to think about preparing year-end accounts, it is important to consider whether the various tax measures the New Zealand Government has rolled out to assist business owners respond to the challenges presented by COVID-19, could apply to your business and, if they do, how they apply.
This means businesses have the option to deduct the full cost of a low-value asset in the year against income in the year of acquisition, effectively treating the entire cost of the asset as depreciation in that year. The threshold for the purposes of the low-value asset rule depends on the date that the asset was acquired.
The relevant dates and thresholds for the low asset write-off are:
If you are GST registered these thresholds apply to the GST exclusive cost of the asset.
As there was both a change to the threshold just prior to the beginning of the 2021 income tax year (assets costing $5,000 or less are able to be written-off after 17 March 2020 to 16 March 2021) and a change to the threshold during the 2021 year (assets costing $1,000 or less are able to be written-off from 17 March 2021 onward), the implications for business owners are they have a limited window during the 2021 income tax year in which an asset costing up to $5,000 can be claimed as a deduction in the year of purchase.
For example, a business acquiring a new computer costing $3,000 on or before 16 March 2021 will be entitled to claim the full $3,000 cost as a deduction. However, if the computer is bought after 16 March 2021 it will need to be depreciated giving rise to a $125 deduction for the 2021 year.
The low value asset deduction may not be available if a business owner is purchasing multiple assets each costing less than $5,000 from the same supplier at the same time. The availability of the low value asset deduction would need to be assessed on a case-by-case basis, and your adviser can assist with this.
Another depreciation related change announced as part of the Government’s package was the re-introduction of depreciation on commercial and industrial buildings from the 2021 income tax year onward.
Depreciation deductions are available to all sectors and apply to both new and existing buildings on a permanent basis. From 1 April 2020 onward, non-residential buildings with an estimated useful life of 50 years or more have a depreciation rate of 2% using the Diminishing Value method or 1.5% using the Straight-line method. Where depreciation has previously been claimed on a building, specific rules apply to determine the value from which depreciation should be recommenced.
Determining whether a building is a “non-residential building” for depreciation purposes can be a complex process, particularly in the case of Airbnb businesses and similar. Speak to your adviser for assistance with this process or get in touch with the Crowe Tax Advisory team.
Join me at 11am NZDT on Wednesday 24 March 2021 for a one-hour webinar where we will discuss the implications of these measures on the 2021 year-end process and look at many more considerations in the ‘Year End Issues’.