ATO Interpretative Decision
ATO ID 2007/117 (Withdrawn)
Income Tax
Capital Allowances: stop holding depreciating assets allocated to a low value poolFOI status: may be released
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This ATO ID is withdrawn. Guidance on this issue can be found in Guide to depreciating assets 2016 (NAT 1996, PDF 623KB) and Rental properties (NAT 1729, 520KB).This document has changed over time. View its history.
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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.
Issue
Where the taxpayer stops holding all the depreciating assets allocated to a low value pool, should the taxpayer continue to work out their deduction for any pool balance remaining under section 40-440 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
Yes. Once depreciating assets are allocated to a low value pool, the taxpayer is required to work out their deduction for the decline in value of these assets under section 40-440 of the ITAA 1997 until the pool balance is exhausted, even if the taxpayer does not continue to hold the related assets.
Facts
A taxpayer purchases a property on 1 December 2003 and as a result becomes the holder of several depreciating assets costing less than $1000. The property is immediately rented and the depreciating assets are allocated to a low-value pool.
The taxpayer sells the property on 30 June 2006 and as a consequence ceases to be the holder of the depreciating assets. The termination value of the depreciating assets is less than the closing balance for the pool.
Reasons for Decision
All legislative references in this Interpretative Decision are to the ITAA 1997 unless otherwise stated.
Subdivision 40-E contains a number of provisions that specifically apply to depreciating assets allocated to a low-value pool (pooled assets). These specific provisions apply to depreciating assets allocated to a low-value pool in preference to the equivalent general provisions that apply for most other depreciating assets. In particular, section 40-440 sets out how to work out the decline in value of pooled assets.
While the decline in value of pooled assets is worked out in Subdivision 40-E (subsection 40-65(5)), the authority to deduct the amount worked out is contained in the general provisions of Subdivision 40-B. In particular, subsection 40-25(1) authorises a deduction each year of an amount equal to the decline in value for that income year of a depreciating asset held for any time during the year.
However, subsection 40-25(5) provides an exception to subsection 40-25(1) for depreciating assets allocated to a low-value pool. It provides that despite not continuing to hold these assets you can continue to deduct the amounts worked out under section 40-440 for these pool assets.
Section 40-445 provides the simplified balancing adjustment rules for pooled assets under which the pool balance is reduced (but not below zero) by the taxable use percentage of the termination value of any asset the taxpayer ceases to hold. If the taxable use percentage of the termination value exceeds the closing pool balance, the pool balance is exhausted and any excess is included in your assessable income.
The effect of these rules for pooled assets is that once established, a low-value pool remains in existence until the pool balance is exhausted. This is so even if all assets allocated to the pool are no longer held. Where a closing pool balance remains after the taxpayer ceases to hold all the assets, the taxpayer continues to be required to work out their decline in value under section 40-440 in order to claim their deduction.
Date of decision: 31 May 2007Year of income: Year ended 30 June 2004 Year ended 30 June 2005 Year ended 30 June 2006
Legislative References:
Income Tax Assessment Act 1997
Subdivision 40-B
Subdivision 40-E
subsection 40-25(1)
subsection 40-25(5)
subsection 40-65(5)
section 40-440
section 40-445
Keywords
Depreciating assets
Low value pool
Hold a depreciating asset
Decline in value
ISSN: 1445-2782
| Date: | Version: | |
| 31 May 2007 | Original statement | |
| You are here | 24 March 2017 | Archived |