(lively music)
-: Subdivision 40-E
removes the need to calculate depreciation
of individual assets in certain circumstances.
This reduces compliance cost for taxpayers
as some assets can be combined
in a low-value pool.
Assets eligible for the low-value pool
include low-cost assets and low-value assets.
Low-cost assets are depreciating assets
excluding horticultural plant items,
which have a cost of less than $1,000
in the year first installed.
That is, in the first year it is available for use.
Remember though, that this excludes assets
that cost less than $300
which are eligible for immediate deduction
under Section 40-80.
Low-value assets are those assets
that have previously been depreciated
using the diminishing value method
and the asset's opening adjustable value
for the income year being considered
is below $1,000 for the first time.
Metal by Hand is a small sheet metal business
run by Glen.
In the income year just ended,
Glen purchased a piece of factory equipment for $1,100
and a printer unit for the office for $800.
Glen expects these assets to be used 80% of the time
for a taxable purpose over their effective lives.
The factory equipment is not a low-cost asset
because even though it's taxable use proportion is $880,
that is 80% of $1,100,
the actual cost of the asset is not less than $1,000.
The printer is a low-cost asset
which Glen may allocate $640 of,
that is 80% of $800 to the low-value pool this year.
It's worth remembering here
that if a low-value pool is maintained,
the taxpayer must allocate the low-cost asset to the pool.
Now, in future years,
the pooled asset will simply form
part of the aggregate opening pool balance
and adjust a single decline in value calculation
using the diminishing value method
with a 37.5% annual rate is needed.
Molly operates a large restaurant
and has 100 tables in the business's
opening low-value pool balance.
Each table has an effective life of 10 years
and they have been acquired in a staggered way
over a number of years.
Using the low-value pool
means that Molly does not have to calculate
100 separate table depreciation schedules.
Instead, she simply multiplies the opening pool balance
by 37.5% to give the declining value.
This is the key advantage to using a low-value pool.
A further way that the low-value pool
makes calculating the declining value simpler,
is the use of a single rate in the first year
in which the asset is allocated to the pool.
That is the year in which it is first installed.
Low-cost assets allocated to the pool
receive a reduced rate of 18.75%
on the taxable use percentage.
This means that there is no need to pro rata
based on the time of year that the asset was installed.
So let's consider if Metal by Hand allocates
an $800 low-cost asset
and a low-value asset with an opening adjustable value
of $800.
Both assets are estimated to be used 80%
for a taxable purpose.
You can see here
that the low-cost asset purchased this year
and allocated to the pool
has a declining value of $120,
which is 18.75% of the taxable use amount
allocated to the pool.
This is because this is the year in which this asset
was first installed.
On the other hand, the low-value asset,
although this is the first year it is allocated to the pool,
has a declining value of $240,
which is 37.5%,
because this is not the year
in which the asset was first installed.
Rather, just the first year it is being allocated
to the pool.
It is also important to remember
that these declines are in addition
to the pool decline in value
which was calculated using the opening pool balance.
These assets will form part of the opening pool balance
in the next income year.
We must also not forget
that if a balancing adjustment event occurs
in respect of a pooled asset,
under Section 40-445, we subtract the taxable use percentage
of the termination value from the closing pool balance.
However, the balance of the pool cannot go below zero.
Any excess value will be assessable income.
So for example if the pool value is $300
and the termination value of a pooled asset is $400,
then the pool will be reduced to zero
and the $100 excess amount will go to assessable income.