• #### Purchase and valuation of second-hand items

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

If you purchase a second-hand item of plant you can generally claim a depreciation deduction based on the cost of the item to you.

Where you purchase a rental property, the most effective means of establishing your cost of plant is to have the separate value of depreciable items, calculated on an arm's length basis, specified in the sale agreement. If separate values for depreciable items of plant are not included in the sale agreement for your rental property when you purchase it, then you may be required to demonstrate the basis of your valuation of the depreciable items.

Generally, independent valuations that establish reasonable values for depreciable items of plant satisfy ATO requirements. In the absence of an independent valuation, you may need to demonstrate that your estimate provided a reasonable value. Considerations would include the market value of the plant itself compared to the total purchase price of the property.

Worksheets for calculating depreciation and low-value pools are contained in the publication Guide to depreciation.

Example

In this example, the Johnsons bought the property part way through the year-on 20 July 2000. The opening undeducted costs are taken to be equal to the contract puchase prices that the Johnsons paid for the items at the time the property was acquired. They are entitled to a depreciation deduction for 346 days out of the 365 in the 2000-01 income year. The depreciation deduction for each item is calculated using the diminishing value method as shown below:

Description

Original
cost

Opening
un-
deducted
cost

Part-year
claim

150% divided
by effective
life (yrs)
from Guide to
dep'n

Dep'n
deduction

Closing
un-
deducted
cost

Furniture

\$2,000

\$2,000

346 ÷ 365

150% ÷ 15

\$190

\$1,810

Carpets

\$1,200

\$1,200

346 ÷ 365

150% ÷ 10

\$171

\$1,029

Curtains

\$1,000

\$1,000

346 ÷ 365

150% ÷ 7

\$203

\$797 (see note)

Totals

\$4,200

\$4,200

\$564

\$3,636

Note: As the closing undeducted cost of the curtains is \$1,000 or less, the Johnsons may choose to transfer this plant to the low-value pool for the year ended 30 June 2002.

End of example

Example

In this example, the Johnsons allocated various items of plant into a low-value pool. The low-value pool comprised plant that had an undeducted cost of less than \$1,000 (because of previous depreciation claims using the diminishing value method) and some new plant that they had purchased during the year.

Plant held before 1 July 2000

Undeducted cost at 30 June 2000

Hot water system

\$486

Refrigerator

\$389

Stove

\$518

Washing machine

\$286

Low value asset decline in value calculation

Asset

Taxable use percentage of cost or opening adjustable value

Low-value pool rate

Deduction for decline in value

Total of assets

\$1,679

37.5%

\$630

Plant held before 1 July 2000

Undeducted cost at 30 June 2000

Pooled depreciation rate

Depreciation deduction

Hot water system

\$486

Refrigerator

\$389

Stove

\$518

Washing machine

\$286

Totals

\$1679

37.5%

\$630

Plant purchased
1 July 2000-30 June 2001

Purchase
price

Television set
(11/11/2000)

\$747

Gas heater (28/2/2001)

\$303

Totals

\$1050

18.75%

\$197

Plant purchased
1 July 2000-30 June 2001

Purchase
price

Low-value pool rate

Deduction for decline in value

Television set
(11/11/2000)

\$747

18.75%

\$140

Gas heater (28/2/2001)

\$303

18.75%

\$57

Total

\$1,050

18.75%

\$197

Total deduction for decline in value for 2000-01

Total deduction for decline in value for 2000–01 is \$827 (\$630 plus \$197).

Closing pool balance for 2000-01

Low-value assets: \$1,679 minus \$630 equals \$1,049

Low-cost assets: \$1,050 minus \$197 equals \$853

Closing pool balance for 2000-01 is \$1,902 (\$1,049 plus \$853)

End of example