Private ruling: Decline in value
Published: April 2014
Ruling period: Year ended 30 June 2013 | Year ending 30 June 2014 | Year ending 30 June 2015
Date scheme commenced: 1 July 2012

Ruling: Q1: Can you include your asset as a depreciable asset in the general small business pool when calculating your deduction for depreciation under Subdivision 328 of the Income Tax Assessment Act (ITAA 1997)? | A1: Yes.

Relevant facts and circumstances: You operate a business. You use an asset as plant in your business. You are a small business entity with an annual turnover of less than $2 million.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 40-25 | Income Tax Assessment Act 1997 Section 40-30 | Income Tax Assessment Act 1997 Section 328-175 | Income Tax Assessment Act 1997 Section 328-185 | Income Tax Assessment Act 1997 Section 328-190 | Income Tax Assessment Act 1997 Section 328-195

Reasons for decision: Summary: An asset used as plant in a business is considered to be a depreciating asset. As such, it can be allocated to a small business entity's general small business pool | Detailed Reasoning - Detailed reasoning: Section 40-30 of the ITAA 1997 defines a depreciating asset as an asset that has a limited effective life and can reasonably be expected to decline in value over the time it is used. Certain assets are excluded from being depreciating assets for the purposes of ITAA 1997 and include: land, items of trading stock and intangible assets unless specifically mentioned in the legislation. Taxation Ruling TR 2013/4 lists the Commissioner's determination of the effective life of various depreciating assets. Table B of TR 2013/4 lists your asset where it is used as plant in a business as being a depreciable asset. It is accepted that the asset used in your business activities is a depreciable asset. A taxpayer generally claims a deduction for the decline in value (depreciation) of depreciating assets under section 40-25 of the ITAA 1997. However, taxpayers who are also small business entities may choose to calculate their deduction under Subdivision 328D of the ITAA 1997. Subsection 328-175(1) of the ITAA 1997 states you can choose to calculate your deductions under this subdivision for an income year for all the depreciating assets you hold if: • you are a small business entity for the income year, and • you started to use the assets or have them installed ready for use, for a taxable purpose during or before that income year. Using an asset for a taxable purpose means using the asset to produce assessable income. Essentially, depreciating assets are allocated to a general small business pool. Once a depreciating asset has been allocated to your general small business pool, it cannot be reallocated, even if you are not a small business entity for a later income year or you do not choose to use Subdivision 328D of ITAA 1997 to calculate your depreciation deduction for that later year. You calculate your deduction for your general small business pool for an income year using the formula: Opening pool balance * 30% Your opening pool balance in the first year you use Subdivision 328D of the ITAA 1997 is the sum of the adjustable values of depreciating assets allocated to the pool. For a later income year, the opening pool balance of your general small business poi is that pool's closing pool balance for the previous income year. Your deduction for depreciating assets added to the general small business pool during the second or subsequent income year is 15% of the asset's adjustable value. As you are using your asset for a taxable purpose, you are able to calculate the deduction for its decline in value using section 328-175 of the ITAA 1997.