• Balancing adjustment event for a depreciating asset in a low-value pool

    Attention

    Warning:

    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

    End of attention

    If a balancing adjustment event occurs for a depreciating asset in a low-value pool, you reduce the amount of the closing pool balance for that income year by the taxable use percentage of the asset's termination value. If that amount exceeds the closing pool balance, you 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 use for other than a taxable purpose 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 2006-07 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 2006-07 income year is $1,955:

    Closing pool balance for the 2005-06 income year

    $3,608

    less the decline in value of the assets in the pool for the year (37.5% x $3,608)

    ($1,353)

    less the taxable use percentage of the termination value of pooled assets that were disposed of during the year

    ($300)

    To help you work out your deductions for depreciating assets in a low-value pool, a worksheet is provided.

    Last modified: 18 Jul 2006QC 27742