Private ruling: Depreciating assets
Published: June 2013
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1: Are the several items of equipment you have purchased, which are used for work-related purposes depreciating assets? | A1: Yes | Q2: Are you required to allocate these items to your low-value pool? | A2: Yes. | Q3: Are safety/steel caped boots a depreciable asset? | A3: No.

Relevant facts and circumstances: You have purchased several items of equipment in the 2011-12 financial year which are used within your employment. You have not received a reimbursement for the costs from your employer. You have created a low-value pool in a previous financial year which low-cost depreciating assets were allocated to.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1 | Income Tax Assessment Act 1997 Division 40 | Income Tax Assessment Act 1997 Subdivision 40-E

Reasons for decision: Detailed Reasoning - Purchase of equipment: Expenditure on items such as laptop computers, calculators and briefcases which are used in the course of performing your income earning activities are not deductible under section 8-1 of the ITAA 1997 as the expenditure is capital in nature. However there are specific provisions in Division 40 of the ITAA 1997 which deal with the deductibility of capital expenditure, including expenditure on certain assets (called depreciating assets). The decline in value of a depreciating asset starts when you first use it, or install it ready for use, for any purpose, including a private purpose. This is known as a depreciating asset's start time. | Detailed Reasoning - Pooled assets: Under the provisions of Subdivision 40-E of the ITAA 1997, certain depreciating assets may be allocated to a low-value pool (pooled assets). Pooling arrangements were introduced in order to simplify the administration burden associated with the need to separately track and calculate the decline in value for expenditure incurred on individual assets. One type of asset that can be a pooled asset is a low-cost asset. A low-cost asset is a depreciating asset, except a horticultural plant, whose cost is less than $1,000.00 as at the end of the financial year in which you starts to use it, or have it installed ready for use, for a taxable purpose. When you allocate a low-cost asset to a low-value pool, you must estimate the percentage (if any) of the asset's usage (including past use) that will be for non-taxable purposes. Once you have allocated an asset to the pool, you cannot vary your estimate of the taxable use percentage even if the actual use of the asset turns out to be different from you 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 financial year and all subsequent years. Once an item is allocated to a low-value pool, the item must remain in the pool. | Detailed Reasoning - Application to your circumstances: You have purchased several items of equipment which are used for work-related purposes. The cost of each of these items was over $300 but under $1,000. The purchase of these items is considered to be capital in nature and the cost is not immediately deductible under section 8-1 of the ITAA 1997. The equipment is depreciating plant and, as such, a deduction is allowable for the decline in value of the items to the extent they are used for work-related purposes. As the cost of each item of equipment exceeds $300 but is below $1,000 they are considered to be low-cost depreciating assets. As you have already created a low-value pool by allocating low-cost depreciating assets to the pool in a previous financial year, these items must also be allocated to the pool. | Detailed Reasoning - Protective footwear: Most work-related protective items are used more or less continuously in the course of income producing activities. In addition, they are often subject to particularly harsh wear and tear because of their protective use. As a result, they need to be replaced reasonably frequently and are of little enduring benefit. In these circumstances, where you use such items in the course of gaining your assessable income, the expenditure will be treated as being of revenue and not of a capital nature.