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  • Simplified depreciation rules

    If you are using the simplified depreciation rules, generally you won't use the UCA rules for low-value pools. Under the simplified depreciation rules you can claim an immediate deduction for most depreciating assets costing less than $150,000.

    The simplified depreciation rules must be used for income years where you were in the simplified tax system (2006–07 and earlier income years).

    See also:

    Depreciating assets you can allocate to a low-value pool

    You can allocate depreciating assets to a low-value pool that:

    • cost less than $1,000 (low-cost assets)
    • are not low-cost assets, but
      • have an opening adjustable value of less than $1,000
      • you have previously worked out deductions using the diminishing value method (low-value assets).

    Depreciating asset's adjustable value

    An asset's adjustable value at a particular time is its cost less its decline in value up to that time. The adjustable value at the start of an income year (the opening adjustable value), is the same as its adjustable value at the end of the previous income year. The adjustable value of a newly acquired asset is generally the asset's cost.

    Depreciating assets you can't allocate to a low-value pool

    You can't allocate the following depreciating assets to a low-value pool:

    • assets for which deductions have been calculated using the prime cost method
    • horticultural plants (including grapevines)
    • assets for which you can deduct amounts under the simplified depreciation rules
    • assets that cost $300 or less for which you can claim an immediate deduction.

    Choosing to allocate depreciating assets to a low-value pool

    You are not required to allocate depreciating assets to a low-value pool. The choice is yours. If you choose not to use low-value pooling, you work out the decline in value of low-cost and low-value assets as you do your other depreciating assets, that is, according to their effective life.

    Once you allocate a low-cost asset to a low-value pool, you must pool all other low-cost assets you start to hold in that, and each later year. This rule doesn't apply to low-value assets. You can decide whether to allocate low-value assets to the pool on an asset-by-asset basis.

    Once you have allocated an asset to the pool, it remains in the pool.

    See also:

    Pooling depreciating assets used only partly for taxable purposes

    When you first allocate a depreciating asset to a low-value pool, you must make a reasonable estimate of the percentage of your taxable use of the asset over its effective life (for a low-cost asset) or its remaining effective life (for a low-value asset). You only allocate to the pool the percentage of the asset's cost (for a low-cost asset) or adjustable value (for a low-value asset) that relates to the use of the asset for a taxable purpose, such as producing assessable income. This percentage is known as the asset's taxable use percentage.

    The cost or opening adjustable value of an asset must be less than $1,000 before taking into account the asset's taxable use percentage for the asset to be allocated to a low-value pool.

    Once you have allocated an asset to the pool, you can't vary your estimate of the taxable use percentage, even if the actual taxable use of the asset turns out to be different to your estimate.

    Example 1 – pool depreciating asset used partly for taxable purposes

    During 2020–21, John buys a printer for $990. John allocated low-cost assets to a low-value pool in 2019–20 so now he must allocate the printer to the pool because it is also a low-cost asset. He estimates that only 60% of its use will be for taxable purposes. Therefore, he would allocate only 60% of the cost of the printer to the pool, that is:

    • 60% × $990 = $594
    End of example

    Working out your deduction for pooled assets

    The deduction for the decline in value of depreciating assets in a low-value pool is worked out using a diminishing value rate of 37.5%. This rate is based on an effective life of four years.

    For the income year you first allocate a low-cost asset to the pool, your deduction is worked out at a rate of 18.75%, or half the pool rate. Halving the rate recognises assets may be allocated to the pool throughout the income year and eliminates the need to make separate calculations for each asset based on the date it was allocated to the pool.

    To work out the decline in value of the depreciating assets in a low-value pool, add:

    • 18.75% of both      
      • the taxable use percentage of the cost of low-cost assets you allocated to the pool during the year
      • the taxable use percentage of the cost of any improvements you made during the year to the assets in the pool.
       
    • 37.5% of both      
      • the closing pool balance for the previous year
      • the taxable use percentage of the opening adjustable values of any low-value assets allocated to the pool during the year.
       

    Example 2 – work out deduction for pooled asset

    Using the facts of the previous example, assume at the end of 2019–20 John has a low-value pool with a closing balance of $5,000. John's deduction for the assets in the pool for 2020–21 is:

    Description

    Value

    18.75% of the taxable use percentage of the cost of the printer allocated to the pool during the year (18.75% of $594)

    $111

    37.5% of the closing pool balance for the previous year (37.5% of $5,000)

    $1,875

    Total

    $1,986

     

    End of example

    Disposal of a pooled depreciating asset

    If you dispose of a pooled asset during an income year you must reduce the closing pool balance for that year by the taxable use percentage of the asset's termination value (for example, any proceeds from the disposal). If this percentage of termination value exceeds the closing pool balance, the excess is included in your assessable income.

    When an asset that was used only partly for a taxable purpose is disposed of, a capital gain or loss may arise. Where there's a difference between the asset's cost and its termination value, the proportion of this difference that is attributable to the estimated non-taxable use of the asset is treated as a capital gain or loss under the capital gains provisions.

    Example 3 – disposal of pooled depreciating asset

    Following on from the first example, during 2021–22, John sells the printer for $500. Because he originally estimated that the printer would only be used 60% for taxable purposes, the closing balance of the pool is reduced by 60% of the termination value, that is:

    • 60% × $500 = $300

    A capital loss of $196 also arises. As the printer's taxable use percentage is 60%, 40% of the difference between the asset's cost and its termination value is treated as a capital loss, that is:

    • 40% × ($500 less $990) = $196 capital loss
    End of example

    Working out the closing pool balance

    The closing balance of a low-value pool is the sum of the closing pool balance for the previous income year then added:

    • the taxable use percentage of the costs of any low-cost assets allocated to the pool for the year
    • the taxable use percentage of the opening adjustable values of low-value assets allocated to the pool for the year
    • the taxable use percentage of the cost of any improvements made to the assets in the pool during the year less
      • the deduction for the decline in value of the depreciating assets in the pool for the year
      • the taxable use percentage of the termination value of any pooled assets that you disposed of during the year.
       

    Example – working out the closing pool balance

    Assuming that John made no additional acquisitions to or disposals from his low-value pool, the closing balance of his pool for 2001–02 and 2002–03 is:

    Closing pool balance 2020–21

    Item

    Amount

    Closing pool balance for 2019–20

     

    $5,000

    Plus taxable use percentage of low-cost assets allocated for the year (see example 1)

    New printer

    $594

    Less decline in value of assets in pool for the year (see example 2)

     

    − $1,986

    Closing pool balance for 2020–21

     

    $3,608

     

    Closing pool balance 2021–22

    Item

    Amount

    Closing pool balance for 2020–21

     

    $3,608

    Less decline in value of assets in pool for the year

    37.5% x $3,608

    − $1,353

    Less taxable use percentage of termination value of pooled assets that were disposed of during the year (see example 3)

     

    − $300

    Closing pool balance for 2021–22

     

    $1,955

     

    End of example

    How this applies to primary producers

    You can only claim a deduction for primary production activities under the UCA low-value pooling provisions if the assets can't be deducted under the primary producer provisions.

    Where you're using a low-value pool and need to separate your deductions into primary production and non-primary production activities, you must apportion your deduction for the low-value pool on a reasonable basis. One way to do this is to keep records as if the deductions to be separated, and the assets the deductions relate to were in a separate pool.

      Last modified: 15 Jul 2020QC 16455