• D6 Low-value pool deduction 2017

    This question is about claiming a deduction for the decline in value of low-cost and low-value assets you used in the course of producing income you show on your tax return, by allocating them to what is called a low-value pool. (Claims for deduction for the decline in value of assets are dealt with at other questions.)

    Low-cost assets are depreciating assets that cost less than $1,000.

    Low-value assets are depreciating assets that are not low-cost assets but which, on 1 July 2016, had been written off to less than $1,000 under the diminishing value method.

    You can have only one low-value pool. Once you choose to allocate a low-cost asset to a low-value pool, you must allocate to the pool all other low-cost assets you hold in that year and in future years.

    Assets you can allocate to a low-value pool include assets you use:

    However, if you claim the deduction at this item, do not claim it at items D1 to D5 and 21.

    The following cannot be included in a low-value pool:

    • assets you have previously claimed deductions for using the prime cost method
    • assets that cost $300 or less for which you can claim an immediate deduction
    • assets for which you deduct amounts under the simplified depreciation rules for small business entities; for more information, see Business and professional items 2017
    • horticultural plants
    • a portable electronic device (such as a laptop, portable printer, personal digital assistant, calculator, mobile phone and portable GPS navigation receiver), computer software, protective clothing, a briefcase or a tool of trade, which is primarily for use in your employment, if your employer provided it, paid for it or reimbursed you for any of its cost, and the benefit was exempt from fringe benefits tax.

    If your low-value pool contains only assets used in business, you must lodge your tax return using myTax or a registered tax agent.

    Did you allocate assets to a low-value pool in 2016-17 or in a previous year?

    No

    Go to question D7 Interest deductions 2017, or return to main menu Individual tax return instructions 2017.

    Yes

    Read on.

    Answering this question

    When you allocate an asset to a low-value pool, you must make a reasonable estimate of the percentage you will use the asset to produce your assessable income over its effective life (for a low-cost asset) or remaining effective life (for a low-value asset). This estimate is called your taxable use percentage for the asset.

    You work out your low-value pool deduction using a diminishing value rate. A rate of 37.5% is generally applied to the pool balance. However, a rate of 18.75% (that is, half the normal pool rate), is applied to the taxable use percentage of:

    • the cost of each low-cost asset you allocate to the pool this income year
    • any additional capital costs (such as improvements) you incur this income year for assets you allocated to the pool in an earlier income year and for low-value assets you allocate to the pool this income year.

    Read example 1, then use Worksheet 1 to work out your deduction.

    Example 1

    Edward bought a printer for $600 in 2016-17. His employer did not pay or reimburse any of the cost of the printer. He decided to allocate it to a low-value pool. He estimated that over its effective life the printer would be used 40% of the time to produce his assessable income as an employee.

    $600 × 40% is $240. Therefore, Edward will write $240 at row e in worksheet 1.

    This is the first year of Edward's low-value pool.

    Edward previously claimed deductions under the diminishing value method for a laptop computer he had purchased for $1,500. His employer did not pay or reimburse any of the cost of the computer. The laptop's opening adjustable value on 1 July 2016 was $900.

    Edward estimates that he will use it solely to produce his assessable income for its remaining effective life. Edward allocates the laptop to the pool in 2016-17 as it is now a low-value asset.

    Edward's worksheet would look like this:

    Worksheet 1 - Edward

    Row

    Low-value pool deduction

    Amount

    a

    The closing balance of the pool for 2015-16

    $0

    b

    For each low-value asset allocated to the pool in 2016-17, multiply its opening adjustable value (on 1 July 2016) by your taxable use percentage for the asset.

    $900

    c

    Add rows a and b.

    $900

    d

    Multiply row c by 0.375.

    $337

    e

    For each low-cost asset allocated to the pool in 2016-17, multiply its cost (including additional capital costs incurred in 2016-17, such as improvements) by your taxable use percentage for the asset.

    $240

    f

    For each asset allocated to the pool in a prior income year, and low-value asset allocated to the pool in 2016-17 for which you incurred additional capital costs (such as improvements) in 2016-17, multiply the costs by your taxable use percentage for the asset.

    $0

    g

    Add rows e and f.

    $240

    h

    Multiply row g by 0.1875.

    $45

    i

    Add rows d and h.

    $382

    The amount at row i is the total low-value pool deduction. Edward will show $382 at K item D6 on his tax return.

    End of example
    Worksheet 1

    Row

    Low-value pool deduction

    Amount

    a

    The closing balance of the pool for 2015-16. If you did not have a low-value pool in 2015-16, write 0.

    $               

    b

    For each low-value asset allocated to the pool in 2016-17, multiply its opening adjustable value (on 1 July 2016) by your taxable use percentage for the asset. Add up the amounts and write in the total.

    $

    c

    Add rows a and b.

    $

    d

    Multiply row c by 0.375.

    $

    e

    For each low-cost asset allocated to the pool in 2016-17, multiply its cost (including additional capital costs incurred in 2016-17, such as improvements) by your taxable use percentage for the asset. Add up the amounts and write in the total.

    $

    f

    For each

    • asset allocated to the pool in a prior income year, and
    • low-value asset allocated to the pool in 2016-17

    for which you incurred additional capital costs (such as improvements) in 2016-17, multiply the costs by your taxable use percentage for the asset. Add up the amounts and write in the total.

    $

    g

    Add rows e and f.

    $

    h

    Multiply row g by 0.1875.

    $

    i

    Add rows d and h.

    $

    The amount at row i is the total low-value pool deduction.

    Completing your tax return

    Step 1

    Using Worksheet 1, work out your total low-value pool deduction. Transfer the amount you worked out at (i) to K item D6.

    Step 2

    You will need the closing pool balance for 2016-17 to calculate your low-value pool deduction for next year. Use Worksheet 2 to work out the closing balance.

    Some common events, such as the sale or disposal of an asset in the low-value pool, or the asset's loss or destruction, result in a 'balancing adjustment event'. If there has been a balancing adjustment event for an asset in the pool, you must reduce the closing pool balance. To do this, you multiply the asset's termination value (generally any proceeds, including any insurance payout, from the event) by your taxable use percentage for the asset. Your closing pool balance is reduced by the amount that results from this calculation. There is space for you to include this amount in Worksheet 2. If this amount is more than the closing pool balance, you reduce the closing pool balance to nil and include the excess amount at item 24 Other income on your tax return.

    Keep a record of your 2016-17 closing pool balance for next year's tax return.

    See also:

    Example 2

    Edward works out his closing balance, using worksheet 2:

    Worksheet 2 - Edward

    Row

    Closing balance for 2015-16

    Amount

    j

    Transfer amount from row a in worksheet 1.

    $0

    k

    Transfer amount from row b in worksheet 1.

    $900

    l

    Transfer amount from row e in worksheet 1.

    $240

    m

    Transfer amount from row f in worksheet 1.

    $0

    n

    Add rows j, k, l and m.

    $1140

    o

    Transfer amount from row i in worksheet 1.

    $382

    p

    Take row o away from row n.

    $758

    q

    For each pool asset subject to a balancing adjustment event in 2016-17, multiply its termination value by your taxable use percentage for the asset (see step 2 above).

    $0

    r

    Take row q away from row p.

    This is your closing pool balance for 2016-17.

    $758

     

    End of example
    Worksheet 2

    Row

    Closing balance for 2016-17

    Amount

    j

    Transfer amount from row a in worksheet 1.

    $               

    k

    Transfer amount from row b in worksheet 1.

    $

    l

    Transfer amount from row e in worksheet 1.

    $

    m

    Transfer amount from row f in worksheet 1.

    $

    n

    Add rows j, k, l and m.

    $

    o

    Transfer amount from row i in worksheet 1.

    $

    p

    Take row o away from row n.

    $

    q

    For each pool asset subject to a balancing adjustment event in 2016-17, multiply its termination value by your taxable use percentage for the asset (see step 2 above). Add up the amounts and write in the total.

    $

    r

    Take row q away from row p.

    This is your closing pool balance for 2016-17.

    $

    Where to go next

      Last modified: 25 May 2017QC 51105