Low-value assets: understanding the rules behind the $1,000 threshold

By Veronica Harley

Inland Revenue has issued draft guidance on how the low-value asset rule applies, reminding taxpayers that there is more to the concession than simply identifying assets with a cost of $1,000 or less. The guidance highlights several important aspects of the rules that taxpayers may not be aware of, and which could affect whether an immediate deduction is available.

The $1,000 cost threshold

The core rule operates to allow an immediate deduction for the cost of a depreciable asset where its cost is $1,000 or less. For GST-registered taxpayers, the threshold is measured on a GST-exclusive basis, while taxpayers who are not GST-registered use a GST-inclusive cost base. Although the asset is written off immediately, it remains depreciable property, with the deduction being claimed technically still being a “depreciation loss”.

A question frequently asked since the introduction of the Investment Boost rules is how the regime interacts with the low-value asset rule. The answer is that the $1,000 threshold is determined using the asset’s original cost before the 20% Investment Boost deduction. If the Investment Boost deduction has the effect of reducing the value to below $1,000 (for example the original cost was $1,200, with $240 claimed as an Investment Boost deduction), the asset does not also qualify for the immediate low-value asset write-off. Rather, the upfront Investment Boost deduction and ongoing depreciation loss deductions on the remaining cost can be claimed.

Items which are part of another item of depreciable property

Importantly, the low-value asset must itself be a separate item of depreciable property and not merely part of another depreciable asset. The purpose of this rule is to prevent taxpayers from breaking larger assets into smaller components to bring them within the $1,000 threshold.

In determining whether something is a separate asset, factors such as whether it is physically distinct, functionally complete in its own right, or whether it performs a separate function will be relevant. Conversely, an item that is physically connected to, integrated into, or necessary for the operation of a larger asset is more likely to be regarded as part of that larger asset. This is fine in theory, but may not always be straightforward in practice, and each case needs to be assessed on its own facts.

The Commissioner has already issued recent guidance on this aspect in IS 25/03: Income tax – identifying the relevant item of property for depreciation purposes, which we covered in a February 2025 Tax Alert article. The examples included in the new draft statement are less controversial in this regard. For example, an internal water filtration cartridge purchased separately for a commercial espresso machine forms part of the espresso machine because it has no independent function and is necessary to complete the larger item.

The second example is of a detachable seed-spreader that clips onto the rear of a mower. The seed-spreader remains separate from the mower because it serves a different function, operates independently of the mower's core function, and can be attached and detached without affecting the mower. Therefore, it can be regarded as a separate asset.

Group acquisition or single supplier rule

If a person acquires a group of items from the same supplier at the same time, and those items have the same depreciation rate, their costs must be aggregated when determining whether the $1,000 threshold has been exceeded. As a result, even where each item individually costs less than $1,000, none of the items will qualify for an immediate deduction if their combined cost exceeds the threshold. The purpose of this rule is to prevent the $1,000 threshold from being circumvented by treating each item in a group acquisition as a separate lower-value asset.

The statement helpfully explains what is meant by “at the same time” and “from the same supplier”. The key points about this rule to note are:

• A taxpayer will acquire a group of items at the same time if ownership of each item passes to the taxpayer at the same time.
• Transactions with the same supplier will not necessarily be aggregated merely because they occur on the same day. The items must be acquired at the same time.
• Even if a group of items is acquired from the same supplier at the same time, those items will not be aggregated unless each item attracts the same depreciation rate.

It could be that items are initially purchased as trading stock but are used as depreciable property rather than sold. The example cited is an equipment retailer that purchases several coffee machines as trading stock, each costing less than $1,000, from the same supplier on the same day. However, the retailer decides to use some of the coffee machines as in-house demonstration models. Only the cost of the items that are no longer held as trading stock would need to be aggregated for the purposes of this rule. Therefore, if the aggregated cost of the demonstration models is $1,000 or less, they would be eligible for the low-value asset deduction.

Income on disposal or change of use

And last, but not least, if a low-value asset is disposed of, the consideration is income in the year of disposal. Likewise, if the low-value asset has a change of use and moves out of the tax base, this too will be treated as a deemed disposal.

The guidance suggests that taxpayers should keep a record of low-value assets, for example, in a fixed asset register, so they can identify disposals or changes of use and calculate any income arising. Taxpayers may not want to clutter a depreciation register with lots of low-value assets, particularly as this runs counter to the simplification objective of the low-value asset rule. Nonetheless, best practice would be for taxpayers to retain sufficient records of low-value assets to justify their classification and to identify disposals and changes of use. A pragmatic approach is to ensure that the proceeds of any low value asset sales is coded to “other income” (or similar account) to ensure that is captured in income tax returns.

Conclusion

Although the draft statement does not break significant new ground, it is a useful reminder that the low-value asset concession contains several limitations that are easily overlooked in practice. In particular, the guidance reinforces Inland Revenue's focus on correctly identifying the relevant asset, applying the group acquisition rule where required, and retaining sufficient records to support deductions claimed.

For many taxpayers, the practical takeaway is that a cost of less than $1,000 should be the starting point, not the end of the analysis. The statement effectively puts taxpayers on notice that Inland Revenue expects the concession to be applied consistently with the detailed legislative requirements, even where the amounts involved may appear relatively minor. If you have any questions on low-value assets, please contact your usual Deloitte adviser.

Submissions close on 20 November 2026.