When it comes to work-related expenses, the Australian Taxation Office (ATO) allows employees to claim immediate deductions for depreciating assets that cost $300 or less.
While this rule is straightforward, four tests must be passed to qualify for an immediate deduction. Let’s break down these tests and how they work.
Test 1: The Asset Must Cost $300 or Less
The first requirement is simple—the asset’s cost must be $300 or less. This includes not just the purchase price but also any additional expenses incurred, such as delivery fees.
In cases where an asset is jointly owned, your portion must be used to determine your eligibility for the deduction. For example, if you and a colleague purchase a $500 laptop together, your 50% share (i.e., $250) would qualify for an immediate deduction.
It’s important to note that the cost must be apportioned between personal and work-related use. If you use the asset for both private and work-related purposes, you can only claim the work-related portion
Test 2: The Asset Must Be Used Mainly to Produce Non-Business Income
The asset must be used primarily (more than 50%) to produce non-business income, such as income from employment. If the asset is used for other purposes, such as private use or in a business, you must calculate the portion used for work-related purposes and claim only that percentage.
For example, if you purchase a $150 calculator and use it 60% of the time in your job as an employee and 40% for personal use, you can claim an immediate deduction for 60% of the purchase price.
Test 3: The Asset Is Not Part of a Set Costing More Than $300
The asset must not be part of a set where the total cost exceeds $300. Even if each item in a set costs less than $300, the combined cost must be considered. You cannot claim an immediate deduction if the total cost exceeds $300.
For example, if you buy a set of six CDs that are marketed and designed to be used together, and the total cost of the set is $360, you would not be eligible for the deduction, even if each CD costs less than $300.
Test 4: The Asset Is Not One of Several Identical or Substantially Identical Items
The fourth test ensures that the asset is not part of a group of identical or substantially identical assets that together cost more than $300.
If you purchase multiple identical items, such as 10 clamps for $40 each (totalling $400), they would be considered identical, and you would need to depreciate them over time rather than claim an immediate deduction.
Claiming an immediate deduction for assets costing $300 or less is a great way to reduce your taxable income. However, it’s essential to understand the four tests and how they apply to ensure you remain compliant. By adhering to these guidelines, employees can maximise their deductions while staying on the right side of tax regulations.