Rental Property Asset Claim Threshold Increased from $500 to $5000 for FY2020?

[AshAuck]

Hi, can someone please confirm the claiming of expenses >= $500 for the FY2020 tax year. My understanding is that for FY2020 due to the COVID-19 the $500 limit has been increased to $5000?

I am specifically asking about claiming the entire cost of Heat Pumps which have cost between $2.1k to $2.6k per property in FY2020.

I cant post the link from the IRD website as it comes up with an error.

Thanks, Ash

[artemis]

Hi, can someone please confirm the claiming of expenses >= $500 for the FY2020 tax year. My understanding is that for FY2020 due to the COVID-19 the $500 limit has been increased to $5000?

I am specifically asking about claiming the entire cost of Heat Pumps which have cost between $2.1k to $2.6k per property in FY2020.

I cant post the link from the IRD website as it comes up with an error.

Thanks, Ash

It applies to a small part of the 2020 year, just assets purchased between 17 and 31 March 2020. Then almost all of the next tax year. Then $1000 from then on.

[artemis]

https://www.ird.govt.nz/covid-19/tax-relief/depreciation

[artemis]

Http://taxpolicy.ird.govt.nz/news/2020-03-26-covid-19-tax-bill-enacted

This sets out the 17 March 2020 start date.

Allowing immediate low-value asset write offs. To encourage spending, the change will temporarily increase the threshold of the value of assets which can be deducted in the year the asset was purchased. The threshold will increase from $500 to $5,000 for assets purchased in the 12 months from 17 March 2020 (reducing to $1,000 from 17 March 2021.

[AshAuck]

This sets out the 17 March 2020 start date.

Allowing immediate low-value asset write offs. To encourage spending, the change will temporarily increase the threshold of the value of assets which can be deducted in the year the asset was purchased. The threshold will increase from $500 to $5,000 for assets purchased in the 12 months from 17 March 2020 (reducing to $1,000 from 17 March 2021.

Thank you very much Artemis!

[PC]

Heatpumps all round perhaps?
Half a new roof?
Half a bathroom reno?
Quarter a new kitchen?
New carpet?
Oh goodie!

[artemis]

Heatpumps all round perhaps?
Half a new roof?
Half a bathroom reno?
Quarter a new kitchen?
New carpet?
Oh goodie!

As long as not capital expenditure, which all of those are. Maybe not some heat pumps, that's unclear (to me).

[Anthonyacat]

As long as not capital expenditure, which all of those are. Maybe not some heat pumps, that's unclear (to me).

No, that's exactly what this bill is - items that would otherwise be capital expenditure become deductible in the year of purchase. It's always been the case that if you buy say a $300 microwave for your rental, you claim it in full because despite it being capital and expected to last several years, it's under $500. That $500 limit is now extended to $5,000. Heat pumps and carpet are absolutely now claimable in full for the next year. Same with a DVS/HRV system, or a solar system - assuming you get it under $5k.

However, there is a further restriction, I think the wording is "assets that become part of another asset" - I'd need to go read the legislation or case law to be sure. But that is to say, something like a wall, which is not in itself a separate asset, but part of the house, is not deductible even if it costs under $500. In most cases I'd expect a new roof, bathroom reno, or new kitchen are considered part of the house, not an asset in their own right.

[Perry]

Thanks. Nice clarification, Anthony, notwithstanding the caveat.

[Rosco]

Heatpumps all round perhaps?
Half a new roof?
Half a bathroom reno?
Quarter a new kitchen?
New carpet?
Oh goodie!

Half a new roof - generally a repair anyway
half a bathroom reno - generally a repair anyway. New toilet, vanity, shower would all be classed as building, therefore a repair.
quarter a new kitchen - generally bench top, cupboards are all classed as building, therefore a repair.

In my opinion this change is useless at the moment.

Spending money should be the last thought on anyone's mind just at the second. I would much prefer to keep the cash buffer at the moment, as we don't know how bad this will go or what better opportunities will come up in future. I would park this conversation until say September, then maybe revisit.

Also
1) Ring Fencing - many of the claims allowed by this change will then result in a loss for 31/3/21 year, so be ring fenced anyway.
2) How big is that saving? Say $1,000 asset that would have been 25% depreciation, straight line , and tax payer is 33% tax.
- old year one $250 claim, $82.50 tax affect
- old year two $250 claim , $82.50 tax effect
- old year three $250 claim , $82.50 tax effect
- old year four $250 claim , $82.50 tax effect


New - year one $1,000 claim, $330 tax affect.

OVERALL IN THE LONG RUNG, SAME CLAIM. if under new way, the first year was ring fenced due to lower rent as well as bigger costs. Then end of year two would be $330 tax savings under new way, vs $165 under old way.

Therefore if you are planning on doing a new asset under $5,000 and over $1,000, and were going to be doing it this year. Great, you get an extra perk by being able to claim the tax early. BUT I don't think you should be rushing out to buy assets you don't need just to take advantage of this change. Otherwise you spend $1,000 to save $330, which doesn't make sense, unless you need it.

Ross

[artemis]

No, that's exactly what this bill is - items that would otherwise be capital expenditure become deductible in the year of purchase. It's always been the case that if you buy say a $300 microwave for your rental, you claim it in full because despite it being capital and expected to last several years, it's under $500. That $500 limit is now extended to $5,000. Heat pumps and carpet are absolutely now claimable in full for the next year. Same with a DVS/HRV system, or a solar system - assuming you get it under $5k.

However, there is a further restriction, I think the wording is "assets that become part of another asset" - I'd need to go read the legislation or case law to be sure. But that is to say, something like a wall, which is not in itself a separate asset, but part of the house, is not deductible even if it costs under $500. In most cases I'd expect a new roof, bathroom reno, or new kitchen are considered part of the house, not an asset in their own right.

As in your last paragraph, the asset has to be depreciable (ie not capital) or a repair (but not an improvement), and under the new dollar threshold. Some of the items on the list given would be hard to justify as meeting all of those.

[AshAuck]

Hi, can someone please confirm the depreciation rate of heat pumps?

Looking through the IRD web site and considering residential rental property chattels, it looks like heat pumps would be line item "Heater (Electrical)" which is 67% per year?

Thanks, Ash

[Anthonyacat]

Hi, can someone please confirm the depreciation rate of heat pumps?

Looking through the IRD web site and considering residential rental property chattels, it looks like heat pumps would be line item "Heater (Electrical)" which is 67% per year?

Thanks, Ash

20% Diminishing or 13.5% Straight Line.

Use the IRD's website depreciation rate finder: https://interact2.ird.govt.nz/forms/depnrates/

Choose 2006 and future rates
Choose Search for a specific asset across all industry and asset categories
Type in "Heat Pump"
Profit