What Is a Low Value Pooling Method in Tax Depreciation? | Koste

What does low-value pooling mean?

Low-value pooling is one of the depreciating methods that Koste uses to prepare the tax depreciation reports and has been around since 1st July 2000. To be technical we utilise the Income Tax Act 1997 provision set out in Subdivision 40-E. 

The low-value pool contains both Low-Cost assets and Low-Value assets, now what is the difference? 

Low-Cost assets

Low-cost assets are assets which are acquired and have a total cost of less than <$1,000.

In the year a low-cost asset is depreciated at 18.75% on the diminishing value basis. This rate is applicable for the first year only increasing to 37.5% in the second year onwards. The reason the rate is lower in the first year is it is an average apportioned over the number of days owned in that year.

Please note that thepool is always depreciated on a diminishing value basis. Once you decide to move teh asset into the low value pool it stays there.

A taxpayer can choose whether or not to put low-cost assets into a low-value pool. However, if in an income year (tax year) they choose to do so, then all other low-cost assets acquired from that year onwards must also be put into the low-value pool.

In Fact, it will not always be in the client’s best interests to choose to use a low-value pool for their low-cost assets. For example, if a refurbishment is planned for 2 years’ time, it may be prudent to depreciate the assets outside of the pool as assets within the pool cannot be written-off on demolition or destruction.

 Low-Value assets

Where the depreciation method you are using is diminishing value, you may also add assets to the low-value pool at the beginning of a tax year if their opening adjustable values (written down values) fall below $1,000.

These are known as low-value assets. From that year onwards, the taxpayer can put the asset into the low-value pool and it will be depreciated at 37.5% on the diminishing value basis from then on.

A taxpayer can choose on an asset-by-asset basis whether or not to put low-value assets into the low-value pool. It does not matter when the asset was originally acquired.

Depreciation Example 

workstation

David brought a workstation for his small business on 1 July 2020 for $1,250. He is planning to depreciates it on the diminishing value method with an effective life of 7 years.

Year 1 Year 2

Opening Value

$1,250 $892.85
Depreciation 28.57% $357.14 LVP

 

As the opening adjustable value is less than $1,000 the workstation in year 2, it becomes a low-value asset. Therefore, it can enter the low-value pool to be depreciated at 37.5% on the diminishing value basis.

Related Tags: Depreciation Report SydneyTax Depreciation Australia

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