If you’re claiming depreciation for plant and equipment assets contained within your investment property, you should know about the low-value pool.
Low-value pooling is a way to reap the benefits of claiming depreciation sooner.
Just as its name suggests, low-value pooling involves grouping depreciable assets in an accelerated depreciation pool.
Plant and equipment depreciation can normally be claimed at a pre-determined rate as set by the Australian Taxation Office (ATO). These rates vary between assets, for example, using the diminishing value method, a residential oven depreciates at a rate of 16.67 per cent while solar hot water systems depreciate at a rate of 13.33 per cent.
By placing qualifying assets into the low-value pool, investors can take advantage of a faster rate of depreciation. Assets contained within the pool can be claimed at a rate of 18.75 per cent in the year of purchase regardless of the length of time that the property has been owned and rented. After the first year, the remaining balance of the item can be claimed at a rate of 37.5 per cent per year.
The ATO outlines a clear difference between low-cost assets and low-value assets.
Low-cost assets are those depreciable assets that have an opening value of less than $1,000 in the year of acquisition.
Low-value assets are those which have depreciated over one or more years and now have a written down value of less than $1,000. This means the asset’s value was more than $1,000 in the year of acquisition but the residual value of depreciation is now less than $1,000.
An example of this is residential carpet purchased in January 2017. At the time of purchase, the opening value of the carpet was $1,100 but using the diminishing value rate, by July 2017, the carpet’s residual value was $990. After six months of depreciation, the carpet has a written down value of less than $1,000 and is classified as a low-value asset.
The ATO states that once you choose to allocate a low-cost asset to a low-value pool, you must then add all other low-cost assets you acquire within that income year and future income years to the low-value pool. However, with low-value assets, you can decide whether or not you wish to add individual low-value assets to the pool.
It is important to note that once an asset has been allocated to the pool, it has to remain there.
To learn more about how you can benefit from depreciation sooner using the low-value pool, head to bmtqs.com.au or contact the expert team at BMT Tax Depreciation on 1300 728 726.