What happens in Low Value Pool after property has been sold?

[Apocalypse]

In D6 of TaxPack2006 there is a section:

Disposal of depreciating assets in a low-value pool
If a ‘balancing adjustment event’ happened to an asset in a low-value pool in 2005–06 (such as the sale, loss or destruction of the asset), you need to reduce the closing pool balance for 2005–06 by the taxable use percentage of the asset’s termination value. (The asset’s termination value is usually the proceeds from the asset’s sale or the insurance payout for its loss or destruction.) If the taxable use percentage of the asset’s termination value is more than the closing pool balance, you reduce the closing pool balance to nil and include the excess in your assessable income at item 22.

We were depreciating carpet and a stove in the low value pool of an IP we sold last year...so what is their "termination value". Do you say they were ostensibly "sold" for their depreciated value, or assign them 0 value and write it off entirely?

 

[depreciator]

Hmmm. Never been asked this. More a question for the accountants. I'll have a stab at it, though.

If you have Assets in a Pool and you sell them, the sale price is the termination value. So you remove the item from the Pool and adjust the Pool value by the sale amount.
Similarly, if an Asset is damaged and you claim it on insurance, its termination value is whatever you got from the insurance company. You remove the item from the Pool and adjust the Pool balance by that amount.
If the sale or insurance proceeds are greater than the value of the Pool, then you've made a profit, so it becomes assessable income.

I'm not entirely sure from what you wrote whether you disposed of items in the Pool or just sold the property? If you sold the property on, say, September 1, when your accountant does your tax that year, they would claim 2 months worth of the available depreciation for that year.

If I've got this wrong, the accountants will correct me.

Scott

 

[Mry]

I take a conservative view so other accountants may have a different opinion.

When an IP is sold, I deem all the assets in the pool disposed of for the opening value of the pool. So at the end of the year, the assets in the low value pool for that property have no claim since the opening balance less sale/disposal value is zero and the claim is zero. This follows the standard practice of most accountants to dispose of depreciable items on the sale of an IP for no income or deductible adjustment since they are not specifically mentioned in the sale contract.

You can't actually apportion low value pool deductions because the decline in value claim takes place on the 30th of June each year. Unlike normal depreciation which operates during the year, low value pool calculations are only made once, on the last day.

A more exact way would be to reduce the value of the low value pool by the market value of the disposed items as Scott suggests. But you would have to estimate the market value of each item and I daresay the figure you come up with may be more the the balance of the pool - creating assessable income for you to pay tax on. Maybe Scott has found another income earning avenue - finding the termination value of assets on the disposal of a property that are in a low value pool at that time.

(The correct ATO way would be to identify the value of each item on the sale contract for the property and add up the value of the items in the low value pool and reduce the closing balance of the low value pool by that figure. If the figure is in excess of the value of the low value pool, you will have to declare that amount as assessable income. If it is less, you can claim the remaining balance of the low value pool in perpetuity.)

If you want to make things more difficult, why not ask what happens to the pool claim if you live in the house for say 18 June 2007 to 5 July 2007?

I've asked someone else I know for their thoughts. I'll let you know if I get an answer. And I disclaim responsibility for the advice.

PS - I'm pretty sure pooling was introduced to make things simple.

 

[Apocalypse]

Hmmm. Never been asked this. More a question for the accountants. I'll have a stab at it, though.

If you have Assets in a Pool and you sell them, the sale price is the termination value. So you remove the item from the Pool and adjust the Pool value by the sale amount.
Similarly, if an Asset is damaged and you claim it on insurance, its termination value is whatever you got from the insurance company. You remove the item from the Pool and adjust the Pool balance by that amount.
If the sale or insurance proceeds are greater than the value of the Pool, then you've made a profit, so it becomes assessable income.

I'm not entirely sure from what you wrote whether you disposed of items in the Pool or just sold the property? If you sold the property on, say, September 1, when your accountant does your tax that year, they would claim 2 months worth of the available depreciation for that year.

If I've got this wrong, the accountants will correct me.

Scott

Stove and carpet were in IP that was sold. Examples in relevant tax guides mention attributing values to such things in the contract...but who does? I mean, if you have a depreciation schedule listing 50 odd things who write in the contract the 'sale price' of each of those items? Another example speaks of a guy buying a chainsaw and a block of land for 100K...he had to attribute a reasonable value to the chainsaw and the rest to the land...

Easiest thing will be to make the "disposal price" of the stove and carpet = termination value of the carpet and stove, so no 'adjustment' necessary to those items, simply remove from LVP, then subtract that value from the proceeds of the IP sale...

 

[Apocalypse]

I take a conservative view so other accountants may have a different opinion.
...
You can't actually apportion low value pool deductions because the decline in value claim takes place on the 30th of June each year. Unlike normal depreciation which operates during the year, low value pool calculations are only made once, on the last day.
...


If you want to make things more difficult, why not ask what happens to the pool claim if you live in the house for say 18 June 2007 to 5 July 2007?

I've asked someone else I know for their thoughts. I'll let you know if I get an answer. And I disclaim responsibility for the advice.

PS - I'm pretty sure pooling was introduced to make things simple.

Hmmm...indeed - actually reading the instructions reveals that...so I need to make the termination value = stove and carpets opening value...no apportioning...

 

[coopranos]

It is Friday night so I may have read your question wrong or may not be thinking clearly, but here is an answer anyway:
Regardless of whether something is in the LVP or just being depreciated normally or whatever, it simply forms part of the cost base of your property.
Example:
Property cost $100,000
Capital Additions: $10,000
Accumulated Depreciation on Capital Additions: $1,000
Opening Low value Pool balance: $3,500
Sale price: $200,000

Asset cost base = Cost of property + additions - accumulated depreciation
= 100,000 + 10,000 - 1,000 + 3,500
= $112,500

Gain on sale = sale price - cost base
= 200,000 - 112,500
= $87,500

Even if you expensed and ran a full year of depreciation on the LVP, your net result would be the same:
Depreciation : LVP - $1313; Capital Additions - $250 = $1563

Asset cost base = 100,000 + 10,000 - 1,250 + (3,500 - 1,313)
= 110,937

Gain on sale = 200,000 - 110,937 = $89,063
So $89,063 would be gain, but you would claim $1,563 as a depreciation expense anyway, so net result is still $87,500.

When you sell a property, you are selling the whole thing, not your house + the LVP + other depreciable assets individually. All the written down asset values are added to your cost base, and your gain is the net result.
Let me know if this helps.
Again it is friday night, i take no responsibility for this being accurate !