Edited version of private advice

Authorisation Number: 1051929761887

Date of advice: 8 December 2021

Ruling

Subject: Small business pool - instant asset write-off

Question

Am I required to claim a deduction for the full amount of the small business pool balance such that it will be written off at the end of the relevant income year under sections 328-180 and 328-210 of the Income Tax Assessment Act 1997 (ITAA 1997) as affected by sections 328-180 and 328-181 of the Income Tax (Transitional Provisions) Act 1997 (ITTPA 1997)?

Answer

Yes. The small business pool balance is written off if it falls below the applicable asset write-off threshold for the relevant year.

When using simplified depreciation, for depreciating assets in your small business pool where the income year ends before 6 October 2020, you continue to depreciate as normal until the pool balance falls below the instant asset write-off threshold. The threshold increased to $150,000 for income years ending 30 June 2020 and 30 June 2021. When your income years end between 6 October 2020 and 30 June 2022, you must deduct the balance of the small business pool at the end of the income year.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are a small business entity. You use simplified depreciation. You are a 30 June balancer. You have been depreciating business assets using the small business general pool. At 1 July 20XX, your small business pool balance was $X.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 328

Income Tax Assessment Act 1997 Subdivision 328-D

Income Tax Assessment Act 1997 section 328-180

Income Tax Assessment Act 1997 subsection 328-180(1)

Income Tax Assessment Act 1997 subsection 328-180(2)

Income Tax Assessment Act 1997 subsection 328-180(3)

Income Tax Assessment Act 1997 section 328-190

Income Tax Assessment Act 1997 section 328-210

Income Tax Assessment Act 1997 subsection 328-210(1)

Income Tax (Transitional Provisions) Act 1997 Subdivision 40-BB

Income Tax (Transitional Provisions) Act 1997 section 328-180

Income Tax (Transitional Provisions) Act 1997 section 328-181

Income Tax (Transitional Provisions) Act 1997 subsection 328-181(1)

Income Tax (Transitional Provisions) Act 1997 subsection 328-181(5)

Reasons for decision

Division 328 of the ITAA 1997 provides the rules for small business entities.

Subdivision 328-D of the ITAA 1997 provides the depreciation rules for small business entities choosing to use simplified depreciation.

Subsections 328-180(1) and 328-180(2) of the ITAA 1997 provide that there is a deduction for assets whose cost is less than $1,000 in the income year in which you start to use the asset or have it installed ready for use. Subsection 328-180(3) provides that amounts of $1,000 or more are allocated to the general small business pool, which is described in section 328-185 of the ITAA 1997. Sections 328-190 and 328-210 of the ITAA 1997 provide the calculations for depreciating under the general small business pool and the low value pool, respectively. Neither section provides a mechanism for deducting a lesser amount than that which is prescribed.

The note to subsections 328-180(1), 328-180(2) and 328-180(3) of the ITAA 1997 provide that the $1,000 threshold is increased by section 328-180 (about temporary increased access to accelerated depreciation) or section 328-181 (about temporary full expensing) of the ITTPA 1997. Subsection 328-180(1) of the ITTPA 1997 provide the relevant periods during which the threshold is increased. These changes are summarised in the table below.

The small business pool balance is written off if it falls below the applicable asset write-off threshold for the relevant year. The threshold increased to $150,000 for income years ending 30 June 2020 and 30 June 2021. Further, subsection 328-181(5) of the ITTPA 1997 modifies the low value pool calculation in section 328-210 of the ITAA 1997 such that the words "less than $1,000 but" in subsection 328-210(1) of the ITAA 1997 are disregarded, in relation to an income year that ends on or after 6 October 2020, and on or before 30 June 2022.

In other words, if your income years end between 6 October 2020 and 30 June 2022, you must deduct the balance of the small business pool at the end of the income year.