Private ruling: Small business depreciation pool
Date of advice: 28 September 2016
Published: November 2016
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 2014

Ruling: Q1: If the sale proceeds of an asset allocated to the small business depreciation pool cause the closing pool balance to fall below $20,000, but above zero, is the closing pool balance an immediate deduction? | A1: Yes

Relevant facts and circumstances: You allocated an asset to a small business depreciation pool in the relevant financial year. The asset cost more than the relevant threshold. The asset is only partially used for an income producing purpose. As the asset was purchased between 1 July 2012 and 31 December 2013, you have correctly claimed $5,000 as an immediate deduction. You have also correctly allocated only the taxable purpose proportion of the asset threshold to the pool. During the 2015-16 financial year you sold this asset. You also purchased another asset which cost more than the relevant threshold. The taxable purpose proportion of the sale proceeds will cause the closing pool balance to fall below $20,000 but above zero.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subdivision 328-D | Income Tax Assessment Act 1997 Section 328-180 | Income Tax Assessment Act 1997 Section 328-190 | Income Tax Assessment Act 1997 Section 328-210 | Income Tax Assessment Act 1997 Section 328-215 | Income Tax Assessment Act 1997 Section 328-237 (repealed)

Reasons for decision: Summary: Subdivision 328-D of the Income Tax Assessment Act 1997 (ITAA 1997) states that If you are a small business entity, you can choose to deduct amounts for most of your depreciating assets on a diminishing value basis using a pool that is treated as a single depreciating asset. Broadly, the pool is made up of the costs of the depreciating assets that are allocated to it or, in some cases, a proportion of those costs. The Subdivision sets out how to calculate the pool deductions, and also sets out the consequences of: (a) disposal of depreciating assets; and (b) not choosing to use this Subdivision for an income year after having chosen to do so for an earlier income year; and (c) changing the business use of depreciating assets. Section 328-180 of the ITAA 1997, states, that, you can immediately write off an asset which costs less than $20,000. Assets costing more than $20,000 are allocated to the pool in accordance with their business use percentage. Section 328-190 of the ITAA 1997 states that you depreciate the pool at a rate of 30%, except for assets which are allocated to the pool in that year, which are depreciated at a rate of 15%. Section 328-200 of the ITAA 1997 states the closing pool balance of an income year consists of: • The opening pool balance of the income year • Plus the taxable purpose proportions of any assets added to the pool • Less any depreciation applicable to assets already in the pool • Less any depreciation applicable to new assets added to the pool • Less the taxable purpose proportion of the sale proceeds of any assets disposed of during the year. The closing pool balance will determine whether any further adjustments are required. In summary: • If the closing pool balance is greater than $20,000, the pool continues into the following year • If the closing pool balance is between zero and $20,000, the closing pool balance is claimed as a deduction and the pool balance is reduced to zero (section 328-210 of the ITAA 1997); or • If the closing pool balance is less than zero, the closing pool balance is considered assessable income and the pool balance is reduced to zero (section 328-215 of the ITAA 1997). In your case, your small business pool consists of only one asset -which is above the relevant limit. You have correctly moved only the taxable purpose value of the asset limit threshold to the pool, and correctly applied the previous section 328-237 (now repealed) of the ITAA 1997 to claim an immediate $5,000 capital allowance deduction. Your closing pool value at the end of the 20XX-XX consists of the following: • Written down value of the original asset • Plus the taxable purpose value of the asset (taking into account the relevant threshold) • Less the depreciation applicable to both assets • Less the taxable purpose ratio of the sale proceeds or the original asset. The balance is an amount between zero and $20,000. Therefore, in accordance with section 318-210 of the ITAA 1997, as the closing pool balance is less than $20,000, but greater than zero, you are entitled to claim a deduction equal to the closing pool balance. The carried forward balance of the pool is therefore zero.