What are low-value pools
The decline in value of certain depreciating assets can be worked out through a low-value pool.
Low-value pools established before 1 July 2001 continue and are treated as if they were established under UCA. Use the closing balance of the pool worked out under the former rules to start working out the decline in value of the depreciating assets in the pool under UCA.
Under UCA, you can 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 (after GST credits or adjustments) at the end of the income year in which you started to use it, or had it installed ready for use, for a taxable purpose.
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.
Work out the decline in value of an asset (that you hold jointly with others) on the cost of your interest in the asset. This means that you can allocate your interest in the asset to your low-value pool if the cost of your interest in the asset, or the opening adjustable value of your interest, is less than $1,000. See Jointly held depreciating assets.
You can't 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), see Immediate deduction for certain non-business depreciating assets (costing $300 or less)
- 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.)
From 1 July 2017, special rules apply to certain second-hand depreciating assets in residential rental premises. For information on how the rules for low-value pools apply to these assets, see Rental properties guide 2024.
Allocating depreciating assets to a low-value pool
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 use percentage’.
It is this taxable use percentage of the cost or opening adjustable value that is written off through the low-value pool.
Example: working out the taxable use percentage
Kate allocates a low-cost asset to a low-value pool. The asset has an effective life of 3 years. Kate intends to use the asset 90% for taxable purposes in the first year, 80% in the second year and 70% in the third year. A reasonable estimation of the taxable use percentage would be the average of these estimates, that is, 80%.
End of exampleOnce you have allocated an asset to the pool, you can't vary your estimate of the taxable use percentage even if the actual use of the asset turns out to be different from your estimate.
Once you choose to create a low-value pool and a low-cost asset is allocated to the pool, you must pool all other low-cost assets that you start to hold in that income year and in later income years. However, this rule does not apply to low-value assets. You can decide whether to allocate low-value assets to the pool on an asset-by-asset basis.
Once you have allocated an asset to the pool, it remains in the 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% or half the pool rate. Halving the rate recognises that assets may be allocated to the pool throughout the income year. 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 use 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 use 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.
You then add:
- 37.5% of
- the closing pool balance for the previous income year, and
- the taxable use percentage of the opening adjustable value of any low-value assets allocated to the pool for the income year.
Example: working out the decline in value of depreciating assets in a low-value pool, ignoring any GST impact
During 2023–24, John bought a printer for $990.
As John had allocated low-cost assets to a low-value pool in 2022–23, he had to allocate the printer to the pool because the printer was a low-cost asset. He estimated that he would use the printer 60% for taxable purposes. He therefore allocated 60% of the cost of the printer to the pool, that is, $594.
At the end of 2022–23, John’s low-value pool had a closing pool balance of $5,000. In 2023–24, he did not allocate low-cost or low-value assets to the pool other than the printer.
John’s deduction for the decline in value of the assets in the pool for 2023–24 is $1,986 worked out as follows:
18.75% of the taxable use percentage of the cost of the printer allocated to the pool during 2023–24
(18.75% × $594) = $111
Plus 37.5% of the closing pool balance for 2022–23
(37.5% × $5,000) = $1,875
End of example
The closing balance of a low-value pool for 2023–24 is:
- the closing pool balance for 2022–23
plus
- the taxable use percentage of the cost (first and second elements) of any low-cost assets allocated to the pool in 2023–24
plus
- the taxable use percentage of the opening adjustable value of low-value assets allocated to the pool in 2023–24
plus
- the taxable use percentage of any amounts included in 2023–24 in the second element of cost of
- assets in the pool at the end of 2022–23, and
- low-value assets allocated in 2023–24
less
- the decline in value of the assets in the pool in 2023–24.
Example: working out the closing balance of a low-value pool, ignoring any GST impact
Following on from the previous example, the closing balance of the pool for 2023–24 is $3,608:
- closing pool balance for 2022–23
$5,000 - plus the taxable percentage of the cost of the printer
$594 - subtract the decline in value of the assets in the pool for 2023–24
$1,986
End of example
Balancing adjustment event for a depreciating asset in a low-value pool
If a balancing adjustment event occurs for a depreciating asset in a low-value pool, you reduce the amount of the closing pool balance for that income year by the taxable use percentage of the asset’s termination value. If the taxable use percentage of the asset’s termination value exceeds the closing pool balance, you reduce the closing pool balance to zero and include the excess in your assessable income.
A capital gain or capital loss may arise if the asset is not used wholly for a taxable purpose. The difference between the asset’s cost and its termination value that is attributable to the estimated use for a non-taxable purpose is treated as a capital gain or capital loss.
Example: disposal of a depreciating asset in a low-value pool, ignoring any GST impact
Following on from the previous examples, during 2024–25 John sells the printer for $500. Because he originally estimated that the printer would only be used 60% for taxable purposes, the closing balance of the pool is reduced by 60% of the termination value of $500, that is, $300.
A capital loss of $196 also arises. As the printer’s taxable use percentage is 60%, 40% of the difference between the asset’s cost ($990) and its termination value ($500) is treated as a capital loss.
Assuming that John made no additional allocations to or reductions from his low-value pool, the closing balance of the pool for 2024–25 is $1,955:
- closing pool balance for 2023–24
$3,608 - subtract the decline in value of the assets in the pool for the year
37.5% × $3,608 = $1,353 - subtract the taxable use percentage of the termination value of pooled assets that were disposed of during the year
$300
End of example
This guide includes a worksheet to help you work out your deductions for depreciating assets in a low-value pool.
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