• Calculating pool events

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

    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 or other taxable purpose
    • 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 x Taxable purpose proportion

    Example: Calculating the opening balance

    Before using the simplified depreciation rules, Fiona held the following depreciating assets that she uses in her business. All of these now need to be placed into her small business pool. She calculates as follows:

    • a station wagon with an opening adjustable value of $38,000 (which Fiona estimates she uses 70% of the time in her business), for which she calculates the amount to include in the pool as  
      • $38,000 x 70% = $26,600
       
    • a computer with an opening adjustable value of $3,000 (which Fiona estimates she uses 70% of the time in her business), for which she calculates the amount to include in the pool as  
      • $3,000 x 70% = $2,100
       
    • a refrigerated cabinet with an opening adjustable value of $1,500 (which Fiona uses solely for the business), for which she calculates the amount to include in the pool as  
      • $1,500 x 100% = $1,500
       

    These assets are allocated to the small business pool, with an opening balance of $30,200.

    As they were depreciating assets used in the business in a previous income year, they will be included in the opening pool balance and depreciated at a rate of 30% of the taxable purpose proportion of their adjustable value.

    End of example

    Step 2: New assets and cost additions

    Your next step is to 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 can be immediately written-off where they apply to an asset that had been written-off in a previous year, with any further improvements in later years 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).

    Example: Improving your assets

    You purchased a car for $15,000 that you estimate is used 50% in your business in the last financial year and claimed $7,500 as an instant asset write-off deduction.

    This year you added a tow ball to the car for $300 so you can use a trailer to move around stock in your business. You can instantly write-off the tow ball as it falls under the instant asset write-off threshold, but you can only claim $150 (50%), as the claim is limited to the proportion of the original asset that is used in earning assessable income.

    End of example

    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 x 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.

    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 via the instant asset write-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.
       

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

    Example: Disposing assets

    During the 2015–16 income year, Fiona disposes of the following assets:

    • her old refrigerated cabinet, sold for $1,000 on 1 April 2016  
      • with the full amount included in her small business pool as this asset was used solely in her business
       
    • her station wagon, traded in for $10,000 on a new delivery van on 1 May 2016  
      • the station wagon was used 70% for business purposes, so the formula she uses is the termination value by the taxable purpose proportion ($10,000 x 70% = $7,000).
       

    Fiona must reduce the closing pool balance for the 2015–16 income year by $8,000 as a result of the sale of these assets.

    End of example

    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.

    Example: Adjusting the value of a disposed asset

    Maria added her car to the pool in 2012–13 and used it 60% for business. She increased her business use of her car from 75% to 90% in the 2014–15 income year. She sold her car for $3,000 at the start of the 2015–16 income year.

    Maria must average the estimate of her business use of the car for the year in which it was allocated to the pool and the next three years, as follows:

    • 60% (2012-13 original estimate) business use
    • 75% (2013-14 estimate) business use
    • 90% (2014-15 estimate) business use
    • 90% (2015-16, no change from previous year) business use.

    The average for business use is 79% = (60%+75%+90%+90%) ÷ 4.

    The taxable purpose proportion of the car's termination value is the termination value by the average business use:

    • $3,000 x 79% = $2,370

    Maria reduces the closing pool balance for the disposal of the car by $2,370.

    End of example

    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 (see Step 3: Asset sales and disposals).

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

    Existing assets

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

    Opening pool balance x 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.

    You work out the deduction as:

    Taxable purpose proportion  x  Adjustable value x  15%

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

    Example: Calculating pool deductions

    During the 2014–15 income year when the instant asset write-off threshold was $1,000 Fiona acquired the following assets:

    • a photocopier/fax, acquired in December 2014, which she estimates was used 90% of the time in her business, so the value is calculated as $7,700 x  90%  =  $6,930
    • a new refrigerated cabinet to replace the old one, acquired on 1 April 2015 at a cost of $9,000, to be used exclusively in the business, so the value is calculated as $9,000  x  100%  =  $9,000
    • a delivery van, acquired on 1 May 2015 at a cost of $20,000, which she estimates will be used 70% of the time in her business, so the value is calculated as $20,000 x  70%  =  $14,000.

    Newly acquired first assets

    Asset

    Adjustable value ($)

    % used in the business

    Amount added to pool ($)

    Photocopier/fax

    7,700

    90

    6,930

    New refrigerated cabinet

    9,000

    100

    9,000

    Delivery van

    20,000

    70

    14,000

    Total of pooled assets added during the year

     

     

    $29,930

    If Fiona acquired the above assets in the 2015-16 or 2016-17 income years, when the instant asset threshold increased to $20,000, the:

    • photocopier/fax and refrigerator are immediately written
    • van are moved to the small business pool.
    End of example

    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, and
    • deduct the cost of improving the asset in the year the improvement is made, at the rate of 15%.

    Example: Cost addition amounts

    Fiona installed a larger internal hard drive in her old computer on 1 August 2014 at a cost of $500. She has already estimated that the computer is used 70% of the time for business purposes, so she calculates the value for depreciation purposes as $500 x 70% = $350.

    The new hard drive is an improvement to the existing computer that Fiona allocated to her small business pool at the beginning of the year. Fiona can claim a deduction at half the pool rate in the first year that she uses the hard drive.

    Asset

    Adjustable value ($)

    % used in the business

    Amount added to pool ($)

    Hard drive (including installation)

    500

    70

    350

    Fiona's total deduction calculation for simplified depreciation in 2014–15 is:

     

    Value
    ($)

    Rate
    (%)

    Pool deduction
    ($)

    Instant asset write-off
    ($)

    Total deduction
    ($)

    Pooled assets held at the start of the year

    30,200

    30

    9,060

     

     

    Printer ($700)

    Powerful computer 

    700

    5,440

     

     

    6,140

     

    Pooled assets added during the year:

    Photocopier/fax ($6,930)

    New refrigerated cabinet ($9,000)

    Delivery van ($14,000) 

    29,930 

     

    15

     

    4,490

     

     

     

    Cost addition amount for hard drive

    350

    15

    53

     

     

    Total

     

     

    13,603

    6,140

    19,743

     

    End of example

    Note: Assets immediately deducted are not included in the small business pool.

    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 take into account the taxable purpose proportion of the assets.

    Closing pool balance worksheet

    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)

    $

     

    Example: Calculating closing pool balance

    Fiona works out her closing pool balance for the year as follows:

    Opening pool balance for the year

    $30,200

    A

    plus

    Newly acquired pooled assets. This does not include assets immediately written-off

    $29,930

    B

    plus

    Cost addition amounts

    $350

    C

    less

    Disposals

    $8,000

    D

    Subtotal

    $52,480

    E

    less

    Deduction for pooled assets opening balance

    $9,060

    F

    less

    Deduction allowed for pooled assets you first used during the year

    $4,490

    G

    less

    Deduction for cost addition amounts

    $53

    H

    Closing pool balance for the year (E - F - G - H)

    $38,877

     

     

    End of example

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

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

    The adjustment will ensure that your pool deduction is based on the correct estimate of the value of all your assets and the taxable use proportion.

      Last modified: 05 Jul 2016QC 21100