Assets and depreciation
Small business pool
The small business pool is a simplified depreciation method where eligible assets are grouped together and deducted at set rates, 15% in the first year and 30% in later years.
The small business pool is part of the simplified depreciation rules available to small business entities. Instead of tracking each asset separately, an eligible business can add most of its depreciating assets to a single pool and calculate one deduction for the whole pool at the end of each year. This cuts record keeping and removes the need to work out effective life for each item.
The deduction is calculated at set rates. In the year an asset is added to the pool, a deduction of 15% of its cost is allowed for that asset. In every later year, the pool's opening balance is deducted at 30%. These rates are built into the legislation, so you do not need to pick between prime cost and diminishing value methods for assets in the pool.
The pool also provides a write-off for small balances. If the closing pool balance at the end of the year, before applying the usual rates, falls below the instant asset write-off threshold, the whole balance can be deducted. That threshold changes and is set by legislation, so check ato.gov.au for the current figure. This ensures that old assets do not remain in the pool forever.
When an asset in the pool is sold or disposed of, the proceeds are generally subtracted from the pool balance, rather than creating a balancing adjustment for that asset. If the pool balance becomes negative, the negative amount can be included in assessable income. This simplifies disposals, but it does mean tracking proceeds.
For GST, the pool does not change the credit rules. A GST-registered business generally claims the GST credit on each asset in the BAS for the period of the tax invoice, and the GST-exclusive cost goes into the pool. Businesses not registered for GST add the GST-inclusive cost, because they cannot claim a credit. Sales of pooled assets by a registered business are generally subject to GST.
A common misunderstanding is that assets can move freely in and out of the pool. Once you choose to use the simplified depreciation rules, most assets must go into the pool and generally stay there. Eligibility depends on being a small business entity. This is general information only, so confirm your situation with the ATO or a registered tax professional.
Worked example
A registered business buys a printer for $2,200 including GST and a desk for $1,320 including GST, and adds both to its small business pool. GST-exclusive costs are $2,000 and $1,200, total $3,200, with credits of $200 + $120 = $320. First-year deduction is 15% x $3,200 = $480. The pool balance is $2,720. Next year the deduction is 30% x $2,720 = $816.
Practical tips
- Once you use the simplified depreciation rules, most assets go into the pool, so consider this before choosing.
- Subtract sale proceeds from the pool balance when you dispose of a pooled asset, and keep the sale record.
- Check the current write-off threshold for small pool balances on ato.gov.au, as it can change.