Instant Asset Write Offs - All You Need to Know

Are you keen to know if New Zealand's Low Value Asset Write Off program could be of benefit to your business? Perhaps you're considering investing in some new commercial kitchen appliances, and you want to find out how the initiative can help you reduce your taxable income.

It isn't a new scheme, but it has been extended for 2020 as part of the Government's economic stimulus package following the COVID-19 pandemic. This guide will help you understand what an Instant Asset Write Off is, how it works, who's eligible and what you'll need to do to make the most of it.

What is an Instant Asset Write Off?

An Instant Asset Write Off is an initiative introduced by the New Zealand Government so that businesses can claim immediate deductions when buying new equipment. Simply put, it is a tax break for small to medium-sized businesses, allowing them to acquire capital assets and get an immediate tax deduction.

Essentially, it is a way of simplifying and accelerating depreciation rules for newly-purchased assets. If your assets qualify for an immediate write-off, it allows you to reduce your taxable income and will make your tax return less complicated to complete.

What has changed for 2020?

In response to the COVID-19 pandemic, the New Zealand Government announced an asset threshold increase for its Low Value Asset Write Off scheme as part of the country's economic recovery plan. The two key changes for 2020 are:

Temporary low-value asset threshold increase from $500 to $5,000 - effective between March 17th 2020 and March 16th 2021
Permanent low-value asset threshold increase from $500 to $1,000 - effective from March 17th 2021 onwards

How do Instant Asset Write Offs work?

An Instant Asset Write Off allows businesses to deduct the value of an asset immediately within the first year of its purchase, rather than claiming those deductions over several years. It can be used for multiple assets, providing the cost of each item is within the threshold.

It's not a cash hand-out - it is a deduction to reduce taxable profit. It allows business owners to immediately write off the cost of each asset that costs less than the threshold, and claim a tax deduction in the year it is first used, or installed.

If that asset has been purchased for personal use as well as business use, it is the business portion of the cost that qualifies for an Instant Asset Write Off. The claim must be made in the year the asset is first used, or installed ready for use. The deduction can then be claimed on your business's tax return for that income year.

Am I eligible?

Your business should be eligible to take advantage of the $5,000 Low Value Asset Write Off threshold if you meet the following criteria:

Asset is purchased between March 17th 2020 and March 16th 2021
Cost of each asset is no more than $5,000
Asset does not form part of another item of depreciable property

Any assets purchased on or after March 17th 2021 will need to be below a $1,000 threshold to be eligible for a claim. This new permanent threshold doubles the previous $500 limit, which has been in place since 2005.

TIP: If you buy multiple assets with the same depreciation rate from the same supplier at the same time, the $5,000 threshold applies across all the assets acquired - it's not a per asset threshold.

What type of purchases can I claim for?

Almost anything, as long as it's within the Low Value Asset Write Off threshold. This threshold applies to the total cost of the asset, not just the taxable part. Deductions can be claimed for multiple assets, providing each individual asset is within the cost threshold. The asset must be used solely for business purposes if you want to claim the full deduction.

For the catering and hospitality industry, this scheme covers a huge range of equipment including commercial refrigeration and commercial kitchen appliances such as ovens and dishwashers.

BROWSE ALL KITCHEN APPLIANCES BROWSE ALL REFRIGERATION

TIP: Always consult with your accountant or a qualified professional for advice on purchases and making Instant Asset Write Off claims. It is important to have a full understanding of how any large purchase will affect cash flow and finances, as well as the impact on your business plan. This article does not constitute financial advice.