Split or merged depreciating assets
If a depreciating asset you hold is split into two or more assets, or if a depreciating asset or assets you hold is or are merged into another depreciating asset, you are taken to have stopped holding the original depreciating asset(s) and to have started holding the split or merged asset(s). However, a balancing adjustment event does not occur just because depreciating assets are split or merged.
An example of splitting a depreciating asset is removing a CB radio from a truck. If you install the radio in a house you may be merging the two assets (radio and truck).
After depreciating assets are split or merged, each new asset must satisfy the definition of a depreciating asset if the UCA rules are to apply to it. For each depreciating asset you have started to hold, you need to establish the effective life and cost.
The first element of cost for each of the split or merged depreciating assets is a reasonable proportion of the adjustable values of the original asset(s) just before the split or merger and the same proportion of any costs of the split or merger.
If a balancing adjustment event occurs to a merged or split depreciating asset - for example, if it is sold - the balancing adjustment amount is reduced:
- to the extent the asset has been used for other than a taxable purpose
- by any amount that is reasonably attributable to use for other than a taxable purpose of the original depreciating asset(s) before the split or merger.
This reduction is not required if the depreciating asset is mining, quarrying or prospecting information.
Foreign currency gains and losses
Under new provisions (the forex provisions), if you sell a depreciating asset in foreign currency, the termination value of the asset is translated to Australian currency at the exchange rate applicable when you receive the foreign currency. Any realised foreign currency gain or loss on the transaction is included in assessable income or allowed as a deduction, respectively.
From 1 July 2000, an optional low-value pooling arrangement for plant was introduced. It applied to certain plant costing less than $1,000 or having an undeducted cost of less than $1,000. 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 worked out through a low-value pool.
Transitional rules apply so that 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 is less than $1,000 (after GST credits or adjustments) as at the end of the income year in which you start to use it, or have it installed ready for use, for a taxable purpose.
A low-value asset is a depreciating asset:
- that is not a low-cost asset
- that has an opening adjustable value for the current year of less than $1,000, and
- for which you used the diminishing value method to work out any deductions for decline in value for a previous income year.
The decline in value of an asset you hold jointly with others is worked out on the cost of your interest in the asset. This means if you hold an asset jointly and the cost of your interest in the asset or the opening adjustable value of your interest is less than $1,000, you can allocate your interest in the asset to your low-value pool - see Jointly held depreciating assets.
The following depreciating assets cannot be allocated to a low-value pool:
- low-value assets for which you used the prime cost method to work out any deductions for decline in value for a previous income year
- 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 non-business depreciating assets costing $300 or less, or
- certain depreciating assets used in carrying on research and development activities - see the Research and development tax concession schedule and instructions for more information.