BMT Tax Depreciation is often asked about low-value pooling by investors.
The following questions and answers demonstrate some of the more common queries we receive.
Q: What is low-value pooling?
A: Low-value pooling is a way of depreciating plant items which cost less than $1000 or have an un-deducted cost of less than $1000.
The following types of depreciable assets can be allocated to a low-value pool:
- Low-cost assets – A low-cost asset is a depreciable asset that has an opening value of less than $1000 in the year of acquisition.
- Low-value assets – A low-value asset is a depreciable asset that has a written down value of less than $1000. That is, if the opening value of an asset is greater than $1000 in the year of acquisition but the value remaining after depreciating over time is now less than $1000. Assets meeting this classification are placed in an itemised pool.
You cannot allocate the following depreciating assets to a low-value pool:
- Assets for which you have previously claimed deductions calculated using the prime cost method.
- Assets that cost $300 or less (you can claim assets under $300 as an immediate deduction).
Pooling is used in conjunction with the diminishing value method to maximise deductions in the early years of ownership.
Q: How does the low-value pool affect items that are part of a set?
A: The low-value pool is an effective rule allowing an increased depreciation deduction available to most investment property owners. Any asset in a rental property which costs less than $1000 can be included in the low-value pool and written off at an accelerated rate of 18.75% in the first year of ownership and 37.5% each year thereafter.
There is often confusion concerning assets which form part of a set whentheir total cost exceeds $1000. For example, if a house has six sets of blinds, the cost will be around $3000. The total cost does not appear to qualify for the extra depreciation available in the low-value pool, however BMT Tax Depreciation will still depreciate these blinds at the higher rate as they qualify as individual assets. Dividing $3000 into six makes each blind worth around $500. Therefore the blinds can be included in the low-value pool.
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