If a balancing adjustment event occurs for a depreciating asset in a low-value pool, the amount of the closing pool balance for that income year is reduced by the taxable use percentage of the asset's termination value. If that amount exceeds the closing pool balance, reduce the closing pool balance to zero and include the excess in your assessable income.
A capital gain or capital loss may arise if the asset is not used wholly for a taxable purpose. The difference between the asset's cost and its termination value that is attributable to the estimated non-taxable use of the asset is treated as a capital gain or capital loss.
Example: Disposal of a depreciating asset in a low-value pool (ignoring any GST impact)
Following on from the previous examples, during the 2003–04 income year John sells the printer for $500. Because he originally estimated that the printer would only be used 60% for taxable purposes, the closing balance of the pool is reduced by 60% of the termination value of $500; that is $300.
A capital loss of $196 also arises. As the printer's taxable use percentage is 60%, 40% of the difference between the asset's cost ($990) and its termination value ($500) is treated as a capital loss.
Assuming that John made no additional allocations to or reductions from his low-value pool, the closing balance of the pool for the 2003–04 income year is $1,955:
Closing pool balance for the 2002–03 income year
less the decline in value of the assets in the pool for the year
less the taxable use percentage of the termination value of pooled assets that were disposed of during the year
End of example
To help you work out your deductions for depreciating assets in a low-value pool, a worksheet is provided. Download the depreciating assets and low value pool worksheets (PDF 48KB)This link will download a file.
In-house software is computer software, or a right (for example, a licence) to use computer software:
- that you acquire or develop (or have another entity develop) for your use in performing the functions for which it was developed, and
- for which no amount is deductible outside the UCA or the STS.
If expenditure on software is deductible under the ordinary deduction provisions of the income tax law, the software is not in-house software. A deduction for such expenditure is allowable in the income year in which it is incurred.
Expenditure to develop software for exploitation of the copyright is not in-house software. The copyright is intellectual property which is a depreciating asset and the decline in value would be calculated using an effective life of 25 years and the prime cost method.
Under the UCA, expenditure on in-house software may be deducted in the following ways:
- the decline in value of in-house software acquired-such as off the shelf software-is worked out using an effective life of two and a half years and the prime cost method
- expenditure you incur in developing (or having developed) in-house software may (or may need to be) allocated to a software development pool see Software development pools
- if expenditure incurred in developing (or having developed) in-house software is not allocated to a software development pool, it can be capitalised into the cost of a resulting unit of in-house software-its decline in value can then be worked out using an effective life of two and a half years and the prime cost method from the time the software is first used
- if in-house software costs $300 or less and it is used mainly for producing non-business assessable income, an immediate deduction may be allowable-see Immediate deduction for certain non-business depreciating assets costing $300 or less.
You can claim an immediate deduction for expenditure on in-house software (not allocated to a software development pool) if you have not used the software and decide that you will never use it, despite the fact that you incurred the expenditure with the intention of using the software for a taxable purpose.
The termination value of in-house software you still hold but stop using and expect never to use again or decide never to use is zero.