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  • Low-value pools

    Attention

    Warning:

    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

    End of attention

    From 1 July 2000, an optional low-value pooling arrangement for plant was introduced. It applied to certain plant costing less than $1000 or having an undeducted cost of less than $1000. This plant could be allocated to a low-value pool and depreciated at statutory rates.

    The UCA adopts most of the former rules for low-value pools. From 1 July 2001, the decline in value of certain depreciating assets can be calculated through a low-value pool.

    A low-value pool created before 1 July 2001 continues and is treated as if it were created under the UCA. The closing balance of the pool worked out under the former rules is used to start working out the decline in value of the depreciating assets in the pool under the UCA rules.

    Under the UCA, you can allocate low-cost assets and low-value assets to a low-value pool. A low-cost asset is a depreciating asset whose cost as at the end of the income year in which the asset's start time occurs is less than $1,000 (after GST credits or adjustments). A low-value asset is a depreciating asset that is not a low-cost asset but:

    • which has an opening adjustable value of less than $1000
    • for which you have calculated any available deductions from a decline in value determined under the diminishing value method.

    The following depreciating assets cannot be allocated to a low-value pool:

    • low-value assets for which you have calculated any available deductions from a decline in value determined under the prime cost method
    • horticultural plants (including grapevines)
    • assets for which you can deduct amounts under the STS. see STS taxpayers
    • assets that cost $300 or less for which you can claim an immediate deduction, see Immediate deduction for certain depreciating assets costing $300 or less
    • certain depreciating assets used in carrying on research and development activities.

    Allocating depreciating assets to a low-value pool

    A low-value pool is created when you first choose to allocate a low-cost or low-value asset to the pool.

    When you allocate an asset to the 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 the effective life remaining at the start of the income year in which it was allocated to the pool (for a low-value asset). This percentage is known as the asset's taxable use percentage.

    It is this taxable use percentage of the cost that is written off through the low-value pool.

    Example: Working out the taxable use percentage

    Kate allocates a low-cost asset to a low-value pool. The asset has an effective life of 3 years. Kate intends to use the asset 90 per cent for taxable purposes in the first year, 80 per cent in the 2nd year and 70 per cent in the 3rd year. The taxable use percentage is the average of these estimates; that is, 80 per cent.

    End of example

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

    Once you choose to create a low-value pool and a low-cost asset is allocated to the pool, you must pool all other low-cost assets you start to hold in that income year and in later income years. However, this rule does not 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.

    Working out the decline in value of a depreciating assets in a low-value pool

    Once an asset is allocated to a low-value pool, it is not necessary to work out its adjustable value or decline in value separately. Only one annual calculation for the decline in value for all of the depreciating assets in the pool is required.

    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 per cent.

    The deduction for low-cost assets you allocate to the pool for the income year is worked out at a rate of 18.75 per cent or half the pool rate. Halving the rate recognises that 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 per cent of:
      • the taxable use percentage of the cost of low-cost assets you have allocated to the pool for the income year and
      • the taxable use percentage of any amounts included in the second element of cost of all assets in the pool at the end of the previous year and of low-value assets allocated to the pool for the current year

        and
    • 37.5 per cent of:
      • the closing pool balance for the previous income year and
      • the taxable use percentage of the opening adjustable value of any low-value assets allocated to the pool for the income year.

    Example: Working out the decline in value of depreciating assets in a low-value pool (ignoring any GST impact)

    During the 2001-02 income year, John bought a printer for $990. John allocated low-cost assets to a low-value pool in the 2000-01 income year so now he must allocate the printer to the pool because it too is a low-cost asset. He estimates that only 60 per cent of its use will be for taxable purposes. He, therefore, allocates only 60 per cent of the cost of the printer to the pool; that is, $594.

    Assume that at the end of the 2000-01 income year, John had a low-value pool with a closing pool balance of $5000. John's deduction for the decline in value of the assets in the pool for the 2001-02 income year would be $1986. This is worked out as follows:

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

    $111

    plus 37.5 per cent of the closing pool balance for the previous year (37.5% × $5000)

    $1,875

     

    End of example

    The closing balance of a low-value pool is:

    • the closing pool balance for the previous income year plus
    • the taxable use percentage of the cost of any low-cost assets allocated to the pool for the income year plus
    • the taxable use percentage of the opening adjustable value of low-value assets allocated to the pool for the income year plus
    • the taxable use percentage of any amounts included in the second element of cost of assets in the pool for the income year (these would be all assets in the pool at the end of the previous year and low-value assets allocated for this year) less
    • the decline in value of the assets in the pool for the income year.

    Example: Working out the closing balance of a low-value pool (ignoring any GST impact)

    Following on from the previous example, assuming that John made no additional allocations to or reductions from his low-value pool, the closing balance of the pool for the 2001-02 income year would be $3,608:

    Closing pool balance for the 2000–01 income year

    $5,000

    plus the taxable use percentage of low-cost assets allocated for the year (new printer)

    $594

    less the decline in value of the assets in the pool for the year

    ($1,986)

     

    End of example

    Balancing adjustment event for a depreciating asset in a low-value pool

    If a balancing adjustment event occurs for a depreciating asset in a low-value pool, the amount of the closing pool balance for that year is reduced by the taxable use percentage of the asset's termination value. If that amount exceeds the closing pool balance, reduce the closing pool balance to zero and include the excess in assessable income.

    A capital gain or capital loss may also arise if the asset is not used wholly for a taxable purpose. The difference between the asset's cost and its termination value that is attributable to the estimated non-taxable use of the asset is treated as a capital gain or capital loss.

    Example: Disposal of a depreciating asset in a low-value pool (ignoring any GST impact)

    Following on from the previous examples, during the 2002-03 income year John sells the printer for $500. Because he originally estimated that the printer would only be used 60 per cent for taxable purposes, the closing balance of the pool is reduced by 60 per cent of the termination value of $500; that is $300.

    A capital loss of $196 also arises. As the printer's taxable use percentage is 60 per cent, 40 per cent of the difference between the asset's cost ($990) and its termination value ($500) is treated as a capital loss.

    Assuming that John made no additional allocations to or reductions from his low-value pool, the closing balance of the pool for the 2002-03 income year is $1,955:

    Closing pool balance for the 2001–02 income year

    $3,608

    less the decline in value of the assets in the pool for the year (37.5% × $3608)

    ($1,353)

    less the taxable use percentage of the termination value of pooled assets that were disposed of during the year

    ($300)

     

    End of example

    To help you work out your deductions for depreciating assets in a low-value pool, a worksheet is providedThis link will download a file.

    Last modified: 11 Dec 2019QC 27399