Assets and depreciation
Low-value pool
A low-value pool lets a taxpayer group assets of low cost or low remaining value together and deduct them at 18.75% in the first year and 37.5% each year after.
The low-value pool is an optional depreciation method for assets with a low cost. Instead of calculating deductions asset by asset, you allocate eligible items to a single pool and work out one combined deduction. It is available to taxpayers generally, not just small businesses, which distinguishes it from the small business pool.
Two kinds of assets can be allocated to the pool. The first is a low-cost asset, which is a depreciating asset whose cost is below a legislated threshold. The second is a low-value asset, which is one whose opening adjustable value under the diminishing value method has fallen below that threshold. Once you allocate an asset to the pool, it generally must stay there, and you cannot choose a different method for it.
The deduction rates are set in the legislation. In the year an asset is allocated to the pool, it is deducted at 18.75% of its cost, which is half of the standard 37.5% rate reflecting an assumed mid-year purchase. In following years, the pool's opening balance is deducted at 37.5%. These rates apply regardless of the asset's effective life, so you do not need to work out effective life for pooled items.
When a pooled asset is sold or otherwise disposed of, you reduce the pool balance by the termination value rather than doing a separate balancing adjustment. If the pool balance becomes negative, the negative amount is included in assessable income. This keeps the record keeping simple, though you must track disposals.
For GST, the pool changes nothing about credits. A registered business claims the GST credit on each purchase in the BAS for the period of the tax invoice, and puts only the GST-exclusive cost into the pool. Unregistered businesses include the GST in the cost. Check ato.gov.au for the current low-cost threshold, and for how the pool interacts with simplified depreciation if you are a small business.
Mistakes include adding items that are too expensive, forgetting disposals, and using the pool in a way that conflicts with small business depreciation rules. This is general information only, so confirm your situation with the ATO or a registered tax professional.
Worked example
A registered business with an existing low-value pool purchases tools costing $660 including GST (GST-exclusive $600, credit $60) and allocates them to the pool. First-year deduction on the tools is 18.75% x $600 = $112.50. The remaining pool balance is $487.50. Next year the deduction is 37.5% x $487.50 = $182.81, assuming no other additions.
Practical tips
- Once an asset goes into the pool it generally stays there, so decide before allocating.
- Reduce the pool balance by sale proceeds when a pooled asset is disposed of, and keep the records.
- Check the current low-cost threshold and whether you also use the small business pool, as the rules differ.