ATO Interpretative Decision
ATO ID 2006/215 (Withdrawn)
Income TaxCapital Allowances: low-value assets allocated to low-value pools
FOI status: may be released
This ATO ID is withdrawn. Guidance on this issue can be found in Rental properties (NAT 1729, 520KB) and Guide to depreciating assets 2016 (NAT 1996, PDF 623KB).This document has changed over time. View its history.
Status of this decision: Decision withdrawn 24 March 2017.
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Can a depreciating asset that has not been used for a taxable purpose be allocated to a low-value pool as a low-value asset under subsection 40-425(3) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Yes. A depreciating asset that has not been used for a taxable purpose may be allocated to a low-value pool as a low-value asset under subsection 40-425(3) of the ITAA 1997.
A taxpayer purchases a property on 1 July 2003 and lives in the property until 15 June 2005. They then list the property for rent with a real estate agent, and the property is subsequently rented on 15 July 2005.
As a consequence of purchasing the property the taxpayer became the holder of a depreciating asset with a cost of $1,100.
The opening adjustable value of the asset at the beginning of the 2004-05 income year, worked out using the diminishing value method was less than $1,000.
Reasons for Decision
You can choose to allocate a low-value asset to a low-value pool under subsection 40-425(3) of the ITAA 1997.
Subsection 40-425(5) of the ITAA 1997 defines a low-value asset as a depreciating asset, except a horticultural plant, you hold:
- if you have deducted or can deduct amounts for it under Division 40 of the ITAA 1997 for a previous income year, for which you used the diminishing value method (paragraph 40-425(5)(a) of the ITAA 1997), and
- the opening adjustable value for the current year is less than $1,000, worked out using the diminishing value method (paragraph 40-425(5)(b) of the ITAA 1997), and
- it is not a low-cost asset (paragraph 40-425(5)(c) of the ITAA 1997).
An asset starts to decline in value when it is first used or installed ready for use for any purpose (section 40-60 of the ITAA 1997). In this case the asset began to be used and to decline in value from the time it was held on 1 July 2003. Subsection 40-25(1) of the ITAA 1997 provides the authority to deduct an amount equal to the decline in value for the asset. However, as the asset was used solely for private purposes during the 2003-04 income year, the amount the taxpayer can deduct for the decline in value of the asset for that income year is reduced by subsection 40-25(2) of the ITAA 1997 to a nil amount. The definition of amount in section 995-1 of the ITAA 1997 includes a nil amount. Therefore the requirement of paragraph 40-425(5)(a) of the ITAA 1997 that an amount can be deducted in an earlier year is satisfied.
On 1 July 2004 the asset had an opening adjustable value, worked out using the diminishing value method of less than $1,000 and it is not a low-cost asset. Therefore the requirements of paragraphs 40-425(5)(b) and 40-425(5)(c) of the ITAA 1997 are met.
The asset meets the requirements for a low-value asset under subsection 40-425(5) of the ITAA 1997. It can be allocated to a low-value pool under subsection 40-425(3) of the ITAA 1997 in a year that it meets those requirements even though it had not been used for a taxable purpose.Date of decision: 12 April 2006
Year of income: Year ended 30 June 2005 Year ended 30 June 2004 Year ended 30 June 2003
Income Tax Assessment Act 1997
Capital Allowances CoE
Low value pool
Uniform capital allowances system