You can calculate the depreciation of certain low-cost and low-value assets by allocating them to a low-value pool and depreciating them at a set annual rate.
A low-cost asset is one that costs less than $1,000 after deducting any GST credits you're entitled to claim.
A low-value asset is an asset that has depreciated over one or more years and now has a written-down value of less than $1,000, but only if you've previously worked out deductions for it using the diminishing value method.
Starting a low-value pool
You start a low-value pool when you first choose to allocate a low-cost or low-value asset to it.
Once you choose to create a low-value pool and allocate a low-cost asset to it, you must pool all other low-cost assets you start to hold in that income year and in later income years. However, for your low-value assets (that is, assets written down to a value of less than $1,000), you can decide whether to allocate them to the pool on an asset-by-asset basis.
Once you've allocated an asset to the pool, it must remain there.
Calculating the depreciation
You calculate the depreciation of all the assets in the low-value pool at the annual rate of 37.5%.
If you acquire an asset and allocate it to the pool during an income year, you calculate its deduction at a rate of 18.75% (that is, half the pool rate) in that first year. This rate applies regardless of at what point during the year you allocate the asset to the pool.
Assets you can’t allocate to a low-value pool
You can't allocate the following assets to a low-value pool:
- assets that cost $100 or less for which you can claim an immediate deduction
- assets costing up to $300 used to earn income other than from a business (which can be immediately deducted)
- assets for which you can claim deductions under the simplified depreciation rules for small business
- assets for which you previously calculated depreciation using the prime cost method
- portable electronic devices (including laptops, portable printers, personal digital assistants, calculators, mobile phones and portable GPS navigation receivers), computer software, protective clothing, briefcases and tools of trade, if:
- you provided the item to your employee, or
- you paid for some or all of the cost of the item (or reimbursed your employee for it) and the provision, payment or reimbursement was exempt from fringe benefits tax
- horticultural plants, including grapevines
- certain assets you use to conduct research and development activities.
If you purchase a large number of items for your business and use a low-value pool, you may be able to use the sampling rule to estimate how much of your purchases you can claim as an immediate deduction and how much you must depreciate over time.
The sampling rule saves you time because you don't need to decide whether each purchase is of a revenue nature (and thus immediately deductible) or of a capital nature (which must be written off over time).
- Uniform capital allowance system for low-value pools
- Capital allowances: low-cost assets - sampling rule for small business
- Capital allowances: low-cost assets - sampling rule for large business
- Capital allowances: low-cost assets - threshold rule for small business
- Capital allowances: low-cost assets - threshold rule for large business