Category / Analysis for Sub $500 Assets

[Perry]

As I understand it, small assets ($500 or less) can be written off in the year of purchase.

Nonetheless, how is it accounted for?

Put in the depreciation schedule and written off @ 100% in the year of purchase?

Or should there be some separate expense category where such things go?

[Anthonyacat]

As I understand it, small assets ($500 or less) can be written off in the year of purchase.

Nonetheless, how is it accounted for?

Put in the depreciation schedule and written off @ 100% in the year of purchase?

Or should there be some separate expense category where such things go?

FYI, it is currently $5,000 or less from mid-March 2020 to mid-March 2021, then $1,000 thereafter. The $500 is a thing of the past.

But to answer your question, most accountants put this to repairs and maintenance. Strictly I dont think there is an official way of accounting for it. But this treatment works from an efficiency perspective, and overall makes sense most of the time - that new microwave is "maintaining" the house... sorta.

I have seen the 100% depreciation and subsequently written off method, and I have seen a "low value assets" expense code, but neither are very common.

[learner]

Hello Anthonyacat

So, if a $3,500 heat pump purchased in June is put down as repairs and maintenance this year, does that mean the item does not appear in the Asset Register? The new heat pump simply does not appear anywhere in the balance sheet (as an asset), or does it appear, but with a zero value?

[Anthonyacat]

Hello Anthonyacat

So, if a $3,500 heat pump purchased in June is put down as repairs and maintenance this year, does that mean the item does not appear in the Asset Register? The new heat pump simply does not appear anywhere in the balance sheet (as an asset), or does it appear, but with a zero value?

Most common practice is to write off in full. Never touches balance sheet.

Same way a $50 chair or $400 oven always used to be treated.

Putting it on the balance sheet or asset register just creates unnecessary work.

[klauster]

Most common practice is to write off in full. Never touches balance sheet.

Same way a $50 chair or $400 oven always used to be treated.

Putting it on the balance sheet or asset register just creates unnecessary work.

Another way is pooling low value assets, but agreed it's a matter of time you want to spend on it.

[Don't believe the Hype]

Most common practice is to write off in full. Never touches balance sheet.

Same way a $50 chair or $400 oven always used to be treated.

Putting it on the balance sheet or asset register just creates unnecessary work.

What happens when I replace this in 10 yrs... if it was on the asset register then depreciated 100% it's easy to prove the replacement is R&M. Fast forward 10 yrs... in 2030 when i'm doing my yr end and i try to put my new heat pump down to R&M replacing the one I put in in 2020 will it be considered capital as from the POV of my accounts the asset doesn't exist?

[Anthonyacat]

What happens when I replace this in 10 yrs... if it was on the asset register then depreciated 100% it's easy to prove the replacement is R&M. Fast forward 10 yrs... in 2030 when i'm doing my yr end and i try to put my new heat pump down to R&M replacing the one I put in in 2020 will it be considered capital as from the POV of my accounts the asset doesn't exist?

If it was on your asset registered and depreciated 100%, you'd be writing that one off and capitalising the new one anyway.

The whole 'like for like replacement is R&M' is only the case for parts of an asset (a roof, vinyl flooring, doors....) not replacement of the whole asset. If you haven't split Carpets out of your "Building" when you bought it, then when you replace the carpets there's a pretty solid argument for a full deduction - though some would still argue for capitalisation, I'd disagree. But if you've split the carpets out as a separate asset at purchase time, then when it's ripped out you remove that asset from the schedule, write off any remaining value, and capitalise the new one.

[Perry]

Anthony, do you have readily available, the related legislation reference?

[King13]

Is the depreciation limit $5000 per property or $5000 per item/chattel? For instance, a heat pump @ $3500 and a range hood @ $2500 - would both be written off being under the limit? Cheers.

[Anthonyacat]

Anthony, do you have readily available, the related legislation reference?

I do not! Had a quick look for it, but no luck. Afraid I'm an accountant with a good understanding of tax law, rather than a qualified tax lawyer. I've never read the legislation from cover to cover, just bits and bobs as I need to.

Is the depreciation limit $5000 per property or $5000 per item/chattel? For instance, a heat pump @ $3500 and a range hood @ $2500 - would both be written off being under the limit? Cheers.

Yes. Unless bought from the same provider on the same day, both deductible. Nothing to do with property, this $5k thing is for all businesses in the country, not just investors.

[Perry]

Afraid I'm an accountant with a good understanding of tax law, rather than a qualified tax lawyer.

Inadvertently perhaps, quite scary be that comment of yours.

[Anthonyacat]

Inadvertently perhaps, quite scary be that comment of yours.

I can see how some would see it that way. But my CA qualification doesn't guarantee I know everything. The idea is I know enough to know where my knowledge is missing, and get in the appropriate help. There are specialist tax consulting firms that firms like my own utilise on the really tricky stuff. Those guys earn a fortune, but they deserve it.

What's truly scary is that legally one can call themselves an accountant and begin offering services to the public as soon as they've completed an accounting qualification. I can tell you, when I stepped straight out of uni, I didn't know a 10% of what I needed to about real world accounting. Lots of nice theory, some of which is still useful today, but it's a steep learning curve after study ends.

Even worse, people can offer tax and accounting services to the public without the use of the word "accountant" without any training at all. Have a look around the cheap tax return websites and see how many times the word Accountant is mentioned - it's often zero, instead they use "tax agent" and "bookkeepers", which aren't protected terms.

[Perry]

Inadvertently perhaps, quite scary be that comment of yours.

I can see how some would see it that way. But my CA qualification doesn't guarantee I know everything.

That wasn't quite what I had in mind. More the need for having to yoke a lawyer and accountant together to be sure of one's tax position.

[Anthonyacat]

That wasn't quite what I had in mind. More the need for having to yoke a lawyer and accountant together to be sure of one's tax position.

Only if you dont trust the accountant - or have something super complicated.

[BigWal_v2]

Couple of quick questions, please.

Does the $5000 mentioned include the costs to install the asset?

For example - if I buy a heatpump for $4000, and it costs an extra $1500 to install (so a total of $5500), will I then need to depreciate the full $5500 cost?

Or can I expense the first $5000, and forget about the rest?

Or can I expense only the heatpump, at $4000?