Writing off items in low value pool

I've done a bit of a search on this and haven't found anything conclusive. Capitalist suggested in a recent post that even if an asset in the low value pool died, it stayed in, so that you would be writing it off as well as its replacement.

I've treated it differently and my accountant didn't raise an objection. I track the values of each asset individually and I wrote off the written down value of the scrapped asset, while starting the new asset at the prescribed rate.

I've also taken outdated items out of a rental property and applied them to my own use. In this case, I have reduced the value of the pool by the written down value but claimed NO deduction in the year of scrapping. I may have wasted a few dollars in depreciation allowance, but that doesn't really worry me.

Is this the correct treatment for low value pool assets?
 
quiggles said:
I track the values of each asset individually and I wrote off the written down value of the scrapped asset, while starting the new asset at the prescribed rate.

I'm pretty sure you are wrong there on your disposals, but correct in the introduction of the assets.

You only write off the closing balance of the pool the actual sale value of the asset. If there is a sale / disposal for $0, no adjustment to the pool is made. You see, pooling is really more of a magic number rather than a collection of assets reduced at the same sort of rates.

quiggles said:
I've also taken outdated items out of a rental property and applied them to my own use. In this case, I have reduced the value of the pool by the written down value but claimed NO deduction in the year of scrapping.

So you are saying that the assets are being used for private use? The ATO hasn't considered that possibility yet of people taking assets out of a rental property for private use and verbally recommend that you reduce the pool by the market value of the assets removed. Quite funny. I'd be arguing the written down value if the asset was apportioned using the ATO's effective life schedule if I were you (TR2000/18C7).

But if the assets were still at the property, disposed of, lost, not used by you privately, etc, you are not required to reduce the pool, so don't!

quiggles said:
I may have wasted a few dollars in depreciation allowance, but that doesn't really worry me..

Next time, burn the money you would have saved in front of your accountant. It has the same effect to them.
 
I have shocking trouble when it comes to understanding the low value pool. I do understand the novel way of having a bottom line value and simply multiplying by 37.5% to have just the one calculation.

But I too have trouble when the asset, eg Stove, is replaced with a new one, and the old one sent to the dump. How can it continue to be in a LVP and continue to be written off, when it no longer exists. Wouldn't this be false claiming?

What about the value which was still apportioned to the asset, eg Stove, because it failed to even reach the write off period of around 4yrs. Yes it was a dog of a stove and had just gone out of warranty when it failed, but do I continue to write it off, even though it doesn't exist? Do I suffer the loss myself financially and just stop claiming what was left? Do I write off the loss and claim it as a loss?

What happens when you sell the IP with the new stove in it? Surely a balancing event has to occur then, and the item removed from the LVP? What happens to the old stove still in the LVP, does it get sold too?

The ato says a balancing adjustment event occurs for an asset when: you stop holding it- if sold, lost or destroyed. If the termination value is less than the adjustable value, you can deduct the difference.

But you say an item can never be removed from a pool. So over 30yrs, I may have a few stoves, a few hot water systems, etc all on one IP? I have 23 IP's so you can imagine the mess this LVP is going to become in 20yrs time and the trouble I am going to have in sorting the assets out if an IP is then sold.

LVP seems easy to the ato but seems a lot of trouble for the investor.
 
I hope you don't mind me posting again.

Yes, pooling is very difficult to understand, but the 37.5% write off each year (18.75% for new assets) is very attractive!

As I said previously, pooling is more of a "magic number" rather than a collection of assets. Our current understanding of depreciation has to be thrown out the window when we look at pooling.

Remember the "magic number" concept as we look at some of the issues you raise.

Brenda Irwin said:
But I too have trouble when the asset, eg Stove, is replaced with a new one, and the old one sent to the dump. How can it continue to be in a LVP and continue to be written off, when it no longer exists. Wouldn't this be false claiming?

If you were making a depreciation claim based on the written down value of the assets each year, that would be true, but you aren't. All you have is the "magic number", and the only thing that gets written off against that for disposals is the sale value of the items you dispose of.

Brenda Irwin said:
But you say an item can never be removed from a pool. So over 30yrs, I may have a few stoves, a few hot water systems, etc all on one IP? I have 23 IP's so you can imagine the mess this LVP is going to become in 20yrs time and the trouble I am going to have in sorting the assets out if an IP is then sold.

Having 23 IPs is going to be a mess for record keeping to begin with.

For tax purposes, all you need to know for the pool is the assets that are in it. If you dispose of any of them, you just write the sale against the pool balance and remove that asset from the list of assets in the pool. Thats all.

(Of course for tax purposes, you need to keep a receipt for items that you claim on for at least 5 years from the last claim. For pooling, you will never be able to specifically identify any of the assets that are "written off" so you will need to keep receipts for everything in your pool until 5 years after you (a) sell the property or (b) realise sales of your pooled items greater than the balance of the pool and write off the balance of the entire pool).

As for asset adjustments on the sale of an IP, you would have to talk to your accountant about that one.
 
So say the pool opening value is say $26k x 37.5% = $9750. Leaving out the new pool additions at 18.75% to allow simplicity in this example.
$26k less $9750 = $16250

2 Hot water systems, 3 stoves and a tank were replaced in 2003-04. They still had a residual value of $1,964 but because they are discarded, their value is zero, and zero is deducted from $16250 to get $16250 opening pool balance for 2004-05 and the assets are removed from the pool in the following year.

What has occured with the $1,964 which wasn't claimed? Did I lose it? Is it still hidden in the pool?
 
Brenda Irwin said:
2 Hot water systems, 3 stoves and a tank were replaced in 2003-04. They still had a residual value of $1,964 but because they are discarded, their value is zero, and zero is deducted from $16250 to get $16250 opening pool balance for 2004-05 and the assets are removed from the pool in the following year.

What has occured with the $1,964 which wasn't claimed? Did I lose it? Is it still hidden in the pool?

Yes, it remains in the balance of the pool. You can remove those assets from the list of recorded items in the pool, and the pool continues to reduce year after year from the $16,250 figure you stated.

Remember though that you would get a higher claim for depreciation (or as they say at the ATO, "decline in value") under a pooling method than you would from just normal depreciation. For the most part, this makes up for being unable to make balancing adjustments.
 
Thanks for following this and for explaining it respectively. (Sigh). Better ask my accountant why he didn't pick up on what I was doing. :(
 
Q for tax expert- write offs from Low Value Pool

Following on from quiggles post I need some more clarification.

As the tax clock ticks away and I get more frantic trying to finish my tax return, I've hit a problem with the low value pool.

2 years ago, I added $5k in assets to the low value pool. 12 months later, I've moved into this house as my PPOR and not earning any assessable income from it.

Reading the responses below, do I have it right in that these assets just stay in the LVP depreciating their little hearts out, even though they are not used to produce income?????? I'm having trouble removing them in ETax. If they do need to be removed, any instructions would be greatly appreciated.

Thanks in advance for your help.
 
In light of this issue with items entering the Pool and staying in the Pool even when disposed of, one thing to consider when buying a property you intend to renovate in a year or two is to NOT use the Pool until you have done the reno.

Let's say you buy a place with an oldish kitchen, some serviceable carpet and window furnishings on their last legs. You opt to rent the place out for a year before doing a makeover. Get a QS to value the items (or value them yourself) and depreciate them for the first year using their ATO determined Effective Life.

Then when you toss them out after that first year, you can claim all the unclaimed depreciation because you have 'disposed of' the Assets.

When you put the new items in, start using the Pool.

(Be sure to try and buy items priced under $1,000 so the can go straight into the Pool.)

Does that make sense?

Scott
 
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