Low-value pooling is a method of depreciating fixtures, fittings, plant and equipment assets within a property at an accelerated rate to maximise deductions and increase an owner’s annual cash flow.
The following categories of assets can be allocated into a low-value pool:
A low-cost asset is a depreciable asset that has an opening value of less than $1,000 in the year of acquisition. This can include cooktops, rangehoods, exhaust fans and blinds.
A low-value asset is a depreciable asset that has a written down value of less than $1,000. That is, the value of the asset was greater than $1,000 in the year of acquisition, however, the remaining value after previous years’ depreciation is less than $1,000. Assets meeting this classification are placed in an itemised, low-value pool. An example could include a hot water system valued at $1,100. In the second financial year after installation, the asset would have depreciated to a written down value less than $1,000, which would make it eligible to be placed in the low-value pool.
Property investors who place assets in the low-value pool are able to claim them at a rate of 18.75 per cent in the year of purchase, regardless of how long the property has been owned and rented. From the second year onwards the remaining balance of the item can be claimed at a rate of 37.5 per cent. This rule allows for an increased depreciation deduction on qualifying assets.
Assets which form part of a group with a total cost exceeding $1,000 can cause confusion. For example, if a house has a set of six blinds costing around $3,000, it would seem that the set does not qualify for the extra depreciation available in the low-value pool. However, these blinds qualify for the low value pool as individual items and can therefore be depreciated at the higher rate.
A specialist Quantity Surveyor will always use legislation available to maximise depreciation deductions. A BMT Tax Depreciation Schedule will apply low-value pooling where appropriate to increase the rate of depreciation, boosting the cash return earlier for the property owner.
To find out more, contact the expert team at BMT on 1300 728 726.
Reference: BMT Tax Depreciation 2017