Use the low-value pool to improve your cash flow
Claim deductions at an accelerated rate
If you’re claiming depreciation for plant and equipment assets contained within a commercial or residential investment property, you should be aware of low-value pooling.
What is low-value pooling?
Low-value pooling allows investors to group qualifying assets in a pool that can be depreciated at an accelerated rate, rather than at each asset’s individual rate. Assets in the low-value pool can be claimed at a rate of 18.75 per cent in the year of purchase, then 37.5 per cent every year following.
Investors can allocate two types of depreciable assets to a low-value pool, low-cost and low-value assets. A low-cost asset has an opening value of less than $1,000 in the year of acquisition.
A low-value asset refers to an item which has an opening value of $1,000 or greater in the year of acquisition, but the residual value after depreciation falls below the $1,000 threshold in a later tax year. An example is a hot water system with a value of $1,100. In the second financial year of ownership, the asset will have depreciated to a value less than $1,000, which would make it eligible to be placed in the low-value pool.
A specialist Quantity Surveyor can use low-value pooling for qualifying assets to increase the rate of depreciation, therefore maximising the deductions a property investor can claim. This reduces the investor’s assessable income and boosts their cash flow sooner.
Concessional depreciation treatment for small business
If you’re an eligible small-to-medium business, you may choose to calculate deductions for your assets using simplified rules.
Small businesses, those with an aggregated turnover of less than $10 million, are eligible to claim an immediate write-off for assets costing less than $30,000 each, purchased and used or installed ready for use from 7.30pm on 2 April 2019 to 30 June 2020. The threshold was previously $25,000 for assets purchased from 29 January 2019 and $20,000 for assets purchased from 12 May 2015.
If the cost of an asset is the same as or more than the relevant instant asset write-off threshold, the asset can be placed into the small business pool. Assets within a small business pool are deducted at a rate of 15 per cent in the first year they’re added and 30 per cent every year onwards.
A small business is also entitled to deduct the entire balance of the pool if the closing value is less than the immediate asset write-off threshold at the end of the financial year. For example, if the closing balance of the pool is $29,987 at the end of the financial year, the small business can claim the full amount.
Businesses with a turnover between $10 million and $50 million are eligible to use the instant asset write-off for assets costing less than $30,000 each, if purchased and used or installed ready for use from 7.30pm on 2 April 2019 to 30 June 2020. From 1 July 2020, the threshold will revert to $1,000 for small business entities, while medium-sized business will need to work out their asset’s decline in value under the ordinary depreciation provisions.
These immediate write-off rules can be applied to qualifying plant and equipment assets acquired as part of a property purchase.
Given the varied rates and pooling structures, it’s always best to consult with a specialist Quantity Surveyor to find out how much you can claim. They will take advantage of relevant low-value pools in current and future financial years to maximise a property owner’s claim.