If you’re using the general depreciation rules, you can choose to allocate low-cost assets and low-value assets to a low-value pool.
A low-cost asset is a depreciating asset whose cost is less than $1,000.
A low-value asset is a depreciating asset:
- that is not a low-cost asset
- that has an opening adjustable value for the current year of less than $1,000 (worked out using the diminishing value method), and
- for which you used the diminishing value method to work out any deductions for decline in value for a previous income year.
You cannot allocate the following depreciating assets to a low-value pool:
- assets for which you used the prime cost method to work out any deductions for decline in value for a previous income year
- horticultural plants
- assets for which you deduct amounts under the simplified depreciation rules; see Small business entity concessions
- assets that cost $300 or less and are used to earn income other than from a business (for which you can claim an immediate deduction)
- assets that you either use, or have used, in carrying on research and development activities for which you are entitled to a tax offset for a deduction in their decline in value, and your entitlement to that tax offset is worked out under Division 355 of the ITAA 1997
- portable electronic devices, computer software, protective clothing, briefcases and tools of trade, if the item was provided to you by your employer, or some or all of the cost of the item was paid for or reimbursed by your employer, and the provision, payment or reimbursement was exempt from fringe benefits tax.
Portable electronic devices include laptops, portable printers, personal digital assistants, calculators, mobile phones and portable GPS navigation receivers.
You establish a low-value pool the first time you choose to allocate a low-cost or low-value asset to the pool.
When you allocate an asset to the pool, you must make a reasonable estimate of the percentage of your use of the asset that will be for a taxable purpose over its effective life (for a low-cost asset) or the effective life remaining at the start of the income year for which it was allocated to the pool (for a low-value asset). This percentage is known as the asset’s taxable purpose percentage.
It’s this taxable purpose percentage of the cost or opening adjustable value that is written off through the low-value pool.
Working out the decline in value of depreciating assets in a low-value pool
Once you allocate an asset to a low-value pool, it is not necessary to work out its adjustable value or decline in value separately. Only one annual calculation for the decline in value for all of the depreciating assets in the pool is required.
You work out the deduction for the decline in value of depreciating assets in a low-value pool using a diminishing value rate of 37.5%.
For the income year in which you allocate a low-cost asset to the pool you work out its decline in value at a rate of 18.75%. This eliminates the need to make separate calculations for each asset based on the date it was allocated to the pool.
To work out the decline in value of the depreciating assets in a low-value pool, add:
- 18.75% of
- the taxable purpose percentage of the cost (first and second elements) of low-cost assets you have allocated to the pool for the income year, and
- the taxable purpose percentage of any amounts included in the second element of cost for the income year of all assets in the pool at the end of the previous income year, and
- low-value assets allocated to the pool for the income year
and
- 37.5% of
- the closing pool balance for the previous income year, and
- the taxable purpose percentage of the opening adjustable value of any low-value assets allocated to the pool for the income year.
Note: the low-value pool is used for general depreciation rules and is different to the small business pool, which is used with simplified depreciation rules. Assets cannot be allocated to both. Once an asset is allocated to the small business pool, it will remain in that pool even if you choose to stop using the simplified depreciation rules.
