Small business pool calculations

If you choose to use the simplified depreciation rules, any depreciating assets for which you cannot claim an immediate deduction under instant asset write-off or temporary full expensing, are allocated to a small business depreciation pool.

This includes assets that:

• cost the same as, or more than, the instant asset write-off threshold amount.
• you held before you used the simplified depreciation rules (other than excluded assets).

You claim:

• a 15% deduction for these assets in the year they are allocated to the pool (regardless of when the asset was purchased during the year)

For certain new assets of $150,000 or more first held from 12 March 2020 to 7.30pm AEDT 6 October 2020, you can use an accelerated depreciation rate of 57.5% under backing business investment – accelerated depreciation when you first add them to the pool.

See also:

• Instant asset write-off for eligible businesses
• Simpler depreciation for small business
• Backing business investment – accelerated depreciation

Low pool value – instant asset write-off

If the balance of the small business pool (after applying the following adjustments) is less than the instant asset write-off threshold, you can immediately write off the entire pool balance and claim the amount as a depreciation deduction. However, for income years ending between 7:30pm AEDT on 6 October 2020 and 30 June 2023, you deduct the entire balance of the small business pool (there is no threshold for that period).

These steps show what you need to do when using a small business pool:

1. Start with the opening balance for the current year.
2. Add the business portion of the adjustable value of assets you acquired and started to use in the current year.
3. Add the business portion of cost additions to the pool in the current year.
4. Subtract the business portion of proceeds (including insurance payouts) of any assets disposed of in the current year.

 

 

Calculating pool events

These steps show what you need to do when using a small business pool.

• Step 1: Work out your opening balance
• Step 2: New assets and cost additions
• Step 3: Asset sales and disposals
• Step 4: Work out your deduction
• Step 5: Work out the closing pool balance

Step 1: Work out your opening balance

If you've been using the simplified depreciation rules, the opening balance of your small business pool for the current year is the closing balance from the previous year.

For the year in which you first start using these rules you need to work out the opening balance of the small business pool. To do this you need to work out:

• the value of your assets (adjustable value) – that is, the cost of each asset (excluding any GST paid if you're registered for GST), including improvements, less how much it has depreciated since you first started using it, regardless of whether the use was private or business
• the proportion used to earn assessable income (taxable purpose proportion) – that is, the estimated percentage of use of the asset in earning assessable income (as against private use).

For each asset, the amount you include in the small business pool is:

Adjustable value × taxable purpose proportion

Step 2: New assets and cost additions

Add any new or second-hand assets you acquired during the current income year at a cost equal to or above the instant asset write-off threshold, and any cost addition amounts to existing assets.

Cost addition amounts are:

• amounts you've spent on improving the assets  
  • the improvement amounts added to the pool need to have the same taxable purpose proportion applied as that applied to the asset
  • if you made the improvements to the asset in the same income year that you acquired it, the amount simply becomes part of the original cost of the asset
  • improvement costs that are under the instant asset write-off threshold are immediately written-off if they apply to an asset that had been written-off in a previous year, with any further improvements placed into the small business pool
   
• costs incurred when disposing of, or permanently ceasing to use, an asset (including advertising and commission costs or the costs of demolishing the asset).

Note: You do not add to your small business pool:

• Assets that you purchased and first used, or had installed ready for use, for a taxable purpose between 7:30pm AEDT 6 October 2020 and 30 June 2023. You can claim an immediate deduction for the business cost of these assets.
• the cost of improvements made from 7.30pm (AEDT) on 6 October 2020 to 30 June 2023 to an asset that you have written off under the simplified depreciation rules (including instant asset write-off) in an earlier income year, provided you have not previously claimed improvement costs to the asset. You can claim an immediate deduction for the business portion of the improvement cost and no threshold applies. Any later improvements are added to the small business pool.

Step 3: Asset sales and disposals

If you've sold or ceased to use an asset in the current income year, you need to reduce your pool balance by the asset's termination value multiplied by the taxable use proportion.

The termination value could be money you received from selling an asset (including by way of trade-in), or the insurance payout you received as the result of its loss or destruction.

If you used the asset 100% for business, reduce the pool balance by the whole termination value.

If the asset had a portion of private use, reduce the pool balance using the following formula:

Termination value × Taxable purpose proportion

If the value of the small business pool is less than the instant asset write-off threshold after you've made adjustments for any acquisitions, sales or disposals, and before calculating any depreciation deductions for the pool as a whole, the whole small business pool balance must be written-off in that year.

You deduct the balance of the small business pool at the end of an income year ending between 6 October 2020 and 30 June 2023. The pool's closing balance for the income year is zero after full expensing.

If you're transferring assets to another entity as part of a business restructure, you may be entitled to rollover relief, under which you don't subtract the termination values of the depreciating assets from the closing balance of the small business pool.

Assessable income adjustment

If you've sold or disposed of an asset, you may also need to include an amount in your assessable income to allow for any excess between what you receive for the asset over what you've claimed as a depreciation deduction – as follows:

• If you sell or otherwise dispose of an asset that has previously been fully written off, you also need to include its termination value multiplied by its taxable purpose proportion in your assessable income.
• If you sell or otherwise dispose of an asset that formed part of a low pool value that has been previously written-off, you need to subtract the taxable purpose proportion of the asset's termination value in calculating the closing pool balance. If the balance (after acquisitions, cost additions and this adjustment) results in a negative amount, this amount must be included in your assessable income, and the pool's closing balance becomes zero.
• If you sell or otherwise dispose of an asset that has not been fully written-off, you subtract the taxable purpose proportion of the proceeds of the disposal from the pool balance, and if the result after acquisitions and cost additions is  
  • equal to or more than the instant asset write-off threshold, the amount is the pool's closing balance
  • less than the instant asset write-off threshold but more than zero, the amount is claimed as a deduction and the closing balance becomes zero
  • negative, the amount less than zero is included in your assessable income.
   

Note: You deduct the balance of the small business pool at the end of an income year ending between 6 October 2020 and 30 June 2023. The pool's closing balance for the income year is zero after full expensing.

You don't incur a capital gains liability for the disposal of a depreciating asset that you've depreciated under the simplified depreciation rules.

Asset disposal where business use has changed

If you dispose of an asset and there has been a change in how much it was used in your business during the time it was in your small business pool, you must also adjust the taxable purpose proportion of the asset's termination value. You work out the average proportion (taxable purpose proportion) you used the asset in your business during the income years in which the asset was in the pool.

Step 4: Work out your deduction

If the balance of the pool before calculating your deduction for the year is below the instant asset write-off threshold, the pool is written off immediately (see Step 3: Asset sales and disposals).

If not, your deduction for simplified depreciation may include amounts for the following:

• existing assets held at the start of the year
• newly acquired assets added to the pool
• cost addition amounts (see Step 2: New assets and cost additions).

Existing assets

After calculating your opening pool balance in step one, work out your pool deduction using the following formula:

Opening pool balance × 30% (pool rate)

Newly acquired pooled assets (including second-hand assets)

Assets that have been acquired during the year and added to the small business pool are depreciated at 15%. This applies regardless of when during the year you acquired the asset.

Work out the deduction as:

Taxable purpose proportion × Adjustable value × 15%

Note: Assets that are immediately written-off don't form part of your small business pool.

Cost addition amounts

If you made improvements to an asset allocated to your small business pool in an earlier income year, or you have costs associated with the disposal of an asset (see Step 3: Asset sales and disposals) you:

• apply the taxable purpose proportion of the existing asset to the improvement or disposal cost
• deduct the cost of improving the asset in the year the improvement is made, at the rate of 15%.

Step 5: Work out the closing pool balance

The closing pool balance takes into account any:

• pooled assets you installed or first used during the year
• pooled assets you disposed of during the year
• improvements you made, or cost addition amounts you incurred, in the current year to assets you held or installed ready to use in an earlier year
• deductions allowed for pooled assets.

Use the following worksheet to work out the closing pool balance at the end of each income year. The calculations will also need to consider the taxable purpose proportion of the assets.

Table 4: Closing pool balance worksheet

Worksheet item	Value  ($)	Indicator
Opening pool balance for the year	$	A
Plus Adjustable value of new assets that you first used, or installed ready to use, during the year (not including assets immediately written-off)	$	B
Plus Any cost addition amounts including improvements you made to assets in the pool during the year	$	C
Less Taxable purpose proportion of the termination value of any pooled assets you disposed of (including assets that were sold) during the year	$	D
Subtotal (A + B + C − D)	$	E
Less Deduction allowed for assets you held at the start of the year	$	F
Less Deduction allowed for new assets you first used during the year	$	G
Less Deduction allowed for cost addition amounts including improvements you made to the pooled assets during the year	$	H
Closing pool balance for the year (E − F − G − H)	$	Nil

 

Opening pool balance

The opening pool balance for an income year is the closing pool balance from the previous income year, except where you either:

• changed the extent you use a pooled asset in your business
• have assets that you started to use, or hold ready to use, since last choosing to use these rules.

Adjusting for these circumstances will ensure that your pool deduction is based on the correct estimate of the value of all your assets and the taxable use proportion.

Find out how to calculate small business pool events under simplified depreciation rules for small business.