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EE 37: Improvements
or “How to handle tax for improvements to depreciable assets”
You could also call this:

“Tax deductions for low-cost business items”

When you buy something for your business, you might be able to claim it as a tax deduction right away if it’s not too expensive. This is called an ‘item of low value’. Here’s how it works:

The item must cost less than a certain amount. The amount depends on when you bought it. If you bought it before 19 May 2005, it needs to cost $200 or less. If you bought it between 19 May 2005 and 16 March 2020, it needs to cost $500 or less. For items bought between 17 March 2020 and 16 March 2021, the limit is $5,000. After 17 March 2021, the limit is $1,000.

You must use the item in the same year you buy it. It has to be something that would normally lose value over time, like a computer or tools. It can’t be part of something bigger that’s already losing value over time.

If you don’t claim it as a low-value item, you can’t claim it as a tax deduction at all. If you buy a group of similar items at the same time from the same place, the total cost of all of them together needs to be under the limit.

To claim the item, you just put the full cost as a deduction in your tax return for that year. If you sell the item later, you need to add the money you get for it to your income for that year.

If you stop using the item mainly for your business, and you’re not paying fringe benefit tax on it, it’s like you’ve sold it for whatever it’s worth at that time.

The government can change the cost limit by making a new rule. This new rule is a type of law called secondary legislation.

This text is automatically generated. It might be out of date or be missing some parts. Find out more about how we do this.

Next up: EE 39: Items no longer used

or “Rules for business items you no longer use”
Next

Part E Timing and quantifying rules
Depreciation

EE 38Items of low value

  1. This section applies for an item of property that a person acquires, in an income year, when—

  2. the total cost for the item is equal to or less than the threshold value given for the item by subsection (2); and
    1. the person uses the item, or has the item available for use, in the income year; and
      1. the item would be depreciable property if the person did not deal with it under this section; and
        1. the item has not been and will not become part of any other property that is depreciable property; and
          1. the person is denied a deduction for the cost of the item if the person does not deal with the item under this section; and
            1. the item is one of a group of items, acquired at the same time and from the same supplier, to which the same depreciation rate would apply if they were all treated as items of depreciable property,—
              1. if subparagraph (ii) does not apply, the total cost for all the items in the group is equal to or less than the threshold value given for the item by subsection (2):
                1. if the items generally constitute the person’s trading stock, the total cost for all the items in the group not treated by the person solely as trading stock is equal to or less than the threshold value given for the item by subsection (2).

                2. The threshold value for an item is—

                3. $200, if the item is acquired before 19 May 2005:
                  1. $500, if the item is acquired on or after 19 May 2005 and before 17 March 2020:
                    1. $5,000, if the item is acquired on or after 17 March 2020 and before 17 March 2021:
                      1. $1,000, if the item is acquired on or after 17 March 2021.

                        1. If the person chooses to deal with the item under this section, the amount of depreciation loss that the person has for the item for the income year is the item’s cost.

                        2. The person makes the election by claiming, in their return of income for the income year for which the election is made, a deduction for the amount of depreciation loss described in subsection (3).

                        3. If the person disposes in an income year of an item for which they have been allowed a deduction on a claim under subsection (3), the consideration they derive from the disposal is an amount of depreciation recovery income for the income year.

                        4. Subsection (7) applies when—

                        5. a person has been allowed a deduction on a claim under subsection (3) for an item; and
                          1. at a later time, the person stops using the item, or having the item available for use, mainly in deriving assessable income or carrying on a business for the purpose of deriving assessable income; and
                            1. the use to which the item is put at the later time is not subject to fringe benefit tax.

                              1. The person is treated as having disposed of the item for its market value at the later time.

                              2. The Governor-General may make an Order in Council increasing the sum specified in subsection (1)(a) and (f).

                              3. An Order in Council under subsection (8) is secondary legislation (see Part 3 of the Legislation Act 2019 for publication requirements).

                              Compare
                              Notes
                              • Section EE 38(2)(b): amended (with effect on 17 March 2020), on , by section 8(1) of the COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020 (2020 No 8).
                              • Section EE 38(2)(c): inserted (with effect on 17 March 2020), on , by section 8(2) of the COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020 (2020 No 8).
                              • Section EE 38(2)(d): inserted (with effect on 17 March 2020), on , by section 8(2) of the COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020 (2020 No 8).
                              • Section EE 38(9) heading: inserted, on , by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
                              • Section EE 38(9): inserted, on , by section 3 of the Secondary Legislation Act 2021 (2021 No 7).