Low Value Pool Deductions for Client Assets

A low-value pool groups eligible depreciating assets into one annual deduction under the general depreciation rules. Check each asset’s cost, previous method and taxable use before allocating it. The pool’s closing balance carries forward after the deduction and disposal reductions.

Choose the Right Depreciation Rules

Use a low-value pool for eligible assets under the general depreciation rules. The simplified small-business pool has different rules, and an asset cannot enter both pools.

A low-cost asset costs less than $1,000 after GST credits or adjustments. Test the cost at the end of the income year it first becomes used or installed ready for taxable use. A low-value asset is an existing asset, other than a low-cost asset, with an opening adjustable value below $1,000 and a previous diminishing-value deduction.

Check the full cost before reducing it for private use. A $1,200 asset with 60% taxable use does not become a low-cost asset because its taxable share is $720. Its later eligibility as a low-value asset depends on its opening adjustable value and depreciation history.

Before allocating an asset, retain the invoice and first-use record. Record any GST credit entitlement and the prior-year method. The ATO’s low-value pool guidance explains the eligibility tests.

Exclude assets previously depreciated using prime cost, horticultural plants and assets deducted under simplified depreciation. Also exclude non-business assets eligible for the immediate deduction for costs of $300 or less, subject to the set and identical-asset tests. Check the specific exclusions for R&D assets and employer-provided or reimbursed work items with exempt fringe benefits.

From 2026–27, a further exclusion applies to assets initially expected to be used mainly to earn assessable labour income, such as salary or wages. Assets allocated to the pool in 2025–26 or earlier retain their treatment under the legislated application rule. This distinction matters when reviewing an employee’s existing pool or a new work-equipment purchase.

Once you elect to pool a low-cost asset, all eligible low-cost assets acquired in that year and later years enter the pool. Low-value assets remain an asset-by-asset choice. An allocated asset stays in the pool.

Build the Pool Movement

Calculate the low-value pool deduction using separate bases for the two rates. Apply 37.5% to the opening pool plus the taxable-use share of opening adjustable values for newly allocated low-value assets.

Apply 18.75% to the taxable-use cost of new low-cost assets. That rate also applies to qualifying second-element costs incurred for assets already pooled and low-value assets allocated that year. These are additional capital costs of the existing asset, such as an improvement.

A low-cost asset entering late in the income year still uses 18.75%, without a daily pro-rata calculation. A newly allocated low-value asset’s opening adjustable value uses 37.5%. The ATO’s explanation of pool calculations separates these bases.

Fictional Asset Register

This invented 2025–26 workpaper belongs to one individual with an existing pool, rental income and a sole-trader business using general depreciation. The opening pool is $2,400. All costs include any GST charged, and the client has no GST credit entitlement for these amounts.

The rental appliance is new and used wholly for income production. The machine originally cost more than $1,000, so its allocation relies on the low-value test. The employee laptop was allocated before the new labour-income exclusion applies.

Deduction and Closing Balance

Keep the two calculation bases separate so the reviewer can trace each rate.

Carry $2,752.50 into the next year’s opening pool. Keep cents in the workpaper and apply the return’s rounding rules when transferring amounts.

Rental and Private Use

Allocate only the taxable-use share of an eligible asset’s cost or opening adjustable value. Estimate use over the effective life for a low-cost asset, or the remaining effective life for a low-value asset.

In the fictional register, the business equipment contributes $720. Its $180 private share stays outside the pool. Keep the 80% estimate and the records supporting it with the allocation. Applying another 80% reduction to the resulting pool deduction would deduct private use twice.

Preserve each asset’s allocation percentage for later disposal calculations. Do not replace that estimate with a new annual private-use percentage across the entire pool.

For residential rentals, test the second-hand asset restriction before claiming an allocation. Pooling does not restore depreciation denied for affected second-hand assets. Capital works also have their own deduction rules and stay outside this depreciating-asset calculation.

For employee assets, distinguish an existing allocation from a proposed new allocation. The 2026–27 labour-income exclusion prevents new allocations of affected assets even when their cost is below $1,000. Keep eligible earlier allocations in the pool and retain their original taxable-use estimates.

Disposals and the Remaining Balance

When a pooled asset has a balancing adjustment event, reduce the closing pool by its termination value multiplied by its allocation percentage. A sale, loss or permanent cessation of use can trigger that event. Establish the termination value for the particular event, including any applicable GST treatment.

In the workpaper, the laptop’s $400 termination value multiplied by 75% reduces the pool by $300. Calculate the annual pool deduction first, then apply this closing-balance reduction. These mechanics follow Subdivision 40-E of the income tax law.

Do not remove an invented individual written-down value or claim a separate loss on the pooled asset. An unpooled asset has a separate balancing adjustment calculation. Private use can also require a separate capital gains tax calculation when a pooled asset is disposed of.

If taxable termination values exceed the pool after the annual deduction, reduce the pool to zero and include the excess in assessable income. For example, $700 of taxable termination values against a $500 remaining balance produces $200 of assessable income.

A positive balance continues to decline under the pool rules, even after the underlying assets have been disposed of. A low-value pool does not gain the small-business pool’s immediate write-off simply because its remaining balance falls below a threshold.

Check the Deduction Before Lodgment

Tie the pool workpaper to the prior return and asset register before transferring the deduction into your tax software. The preparer records each allocation decision, while the reviewer checks the supporting amounts and signs off the closing balance.

Use this sequence to complete the review.

1. Match the opening pool to the previous year’s final workpaper. Check that any amended return is reflected.
2. Trace additions to invoices and confirm their method and taxable-use basis. Keep the excluded prime-cost asset on its separate schedule.
3. Recalculate both rate bases and trace disposal reductions to sale or insurance records. Confirm that each disposal uses the original allocation percentage.
4. Map the deduction to the correct return field for the income source and return year. Confirm that imported depreciation has not created a second claim.
5. Save the final workpaper with the preparer’s details and reviewer sign-off. Confirm that the next year opens at the reviewed closing balance.

For an individual’s 2025–26 return, the ATO’s individual return instructions direct the relevant employee and rental pool deduction to D6, label K. Do not claim that amount again in work-related expenses or the rental section. A business-only pool follows the business reporting instructions.

If the opening balance differs, compare the prior final schedule with the imported register. Look for omitted allocations or disposal reductions, duplicated private-use adjustments and a draft schedule carried forward instead of the final one. Resolve and document the cause before using the balance to calculate another deduction.

The depreciation calculator supports individual-asset estimates once you have established the appropriate method. For this pool workpaper, release the return only when the $1,327.50 deduction is claimed once and the $2,752.50 closing balance carries forward correctly.