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  • Simplifed depreciation rules

    If you are using the simplified depreciation rules, generally you won't use the UCA rules for low-value pools. Under the simplified depreciation rules you can claim an immediate deduction for most depreciating assets costing less than $30,000. Business with a turnover of up to $10 million can also claim a deduction for each asset purchased and first used or installed ready for use, up to the following thresholds:

    • $30,000, from 7:30 pm (AEDT) on 2 April 2019 until 30 June 2020
    • $25,000, from 29 January 2019 until before 7:30 pm (AEDT) on 2 April 2019
    • $20,000, before 29 January 2019.

    Your business clients can't immediately claim a deduction for individual assets that cost $30,000 or more. They can continue to deduct these over time using the small business pool or general depreciation rules, depending on their turnover.

    You can use the simplified depreciation rules if you are a small business entity (2007–08 and later income years).

    You must use the simplified depreciation rules for income years where you were in the simplified tax system (2006–07 and earlier income years).

    Depreciating assets you can allocate to a low-value pool

    From 1 July 2001 you can allocate depreciating assets to a low-value pool that cost less than $1,000 (low-cost assets), and depreciating assets that are not low-cost assets, but:

    • have an opening adjustable value of less than $1,000
    • you have previously worked out deductions using the diminishing value method (low-value assets).

    An asset can still be a low-value asset even though it was acquired before the start of the UCA system on 1 July 2001.

    Pre-UCA system low-value pools

    A low-value pool created before 1 July 2001 continues, and will be treated as if it had been created under the UCA system. The closing balance of such a pool will be used in calculating deductions for the pool under the UCA system.

    Depreciating asset's adjustable value

    An asset's adjustable value at a particular time is its cost less its decline in value up to that time. The adjustable value at the start of an income year (the opening adjustable value), is the same as its adjustable value at the end of the previous income year. The adjustable value of a newly acquired asset is generally the asset's cost.

    Depreciating assets you can't allocate to a low-value pool

    You can't allocate the following depreciating assets to a low-value pool:

    • assets for which deductions have been calculated using the prime cost method
    • horticultural plants (including grapevines)
    • assets for which you can deduct amounts under the simplified depreciation rules
    • assets that cost $300 or less for which you can claim an immediate deduction.

    Choosing to allocat depreciating assets to a low-value pool

    You are not required to allocate depreciating assets to a low-value pool. The choice is yours. If you choose not to use low-value pooling, you work out the decline in value of low-cost and low-value assets as you do your other depreciating assets, that is, according to their effective life.

    Once you allocate a low-cost asset to a low-value pool, you must pool all other low-cost assets you start to hold in that, and each later year. However, this rule doesn't 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.

    See also:

    Pooling depreciating assets used only partly for taxable purposes

    When you first allocate a depreciating asset to a low-value 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 its remaining effective life (for a low-value asset). You only allocate to the pool the percentage of the asset's cost (for a low-cost asset) or adjustable value (for a low-value asset) that relates to the use of the asset for a taxable purpose, such as producing assessable income. This percentage is known as the asset's taxable use percentage.

    The cost or opening adjustable value of an asset must be less than $1,000 before taking into account the asset's taxable use percentage for the asset to be allocated to a low-value pool.

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

    Example – pool depreciating asset used partly for taxable purposes

    During 2001–02, John buys a printer for $990. John allocated low-cost assets to a low-value pool in 2000–01 so now he must allocate the printer to the pool because it is also a low-cost asset. He estimates that only 60% of its use will be for taxable purposes. Therefore, he would allocate only 60% of the cost of the printer to the pool, that is:

    • 60% × $990 = $594
    End of example

    Working out your deduction for pooled assets

    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%. This rate is based on an effective life of four years.

    For the income year you first allocate a low-cost asset to the pool, your deduction is worked out at a rate of 18.75%, or half the pool rate. Halving the rate recognises 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% of both    
      • the taxable use percentage of the cost of low-cost assets you allocated to the pool during the year.
      • the taxable use percentage of the cost of any improvements you made during the year to the assets in the pool.
    • 37.5% of both    
      • the closing pool balance for the previous year
      • the taxable use percentage of the opening adjustable values of any low-value assets allocated to the pool during the year.

    Example – work out deduction for pooled asset

    Using the facts of the previous example, assume at the end of 2000–01 John has a low-value pool with a closing balance of $5,000. John's deduction for the assets in the pool for 2001–02 is:

    Description

    Value

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

    $111

    37.5% of the closing pool balance for the previous year (37.5% of $5,000)

    $1,875

    Total

    $1,986

     

    End of example
      Last modified: 19 Jul 2019QC 16455