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  • How do you pool 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 1

    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% x $990 = $594

    End of example

    How do you work 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 2

    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:

    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: 25 Jan 2017QC 16455