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Is a depreciating asset with a cost of less than $1,000, that is now being used for a taxable purpose but which was first used for a non-taxable purpose, a low-cost asset that can be allocated to low-value pool under section 40-425 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Yes. As the cost of the depreciating asset is less than $1,000 when it is first used for a taxable purpose, it is a low-cost asset that can be allocated to a low-value pool under section 40-425 of the ITAA 1997.

A taxpayer acquired a property that would be rented out after it was renovated. In the meantime, it served as the taxpayer's private residence.

In the 2001-02 income year, while the taxpayer used the house as a private residence, the existing carpet in one room was replaced with new carpet, at a cost of $800.

The house was placed on the rental market in the 2002-03 income year and used for a taxable purpose during that period.

Under subsection 40-425(1) of the ITAA 1997, a taxpayer can choose to allocate a low-cost asset to a low-value pool for the income year in which it starts to be used for a taxable purpose.

A low-cost asset is a depreciating asset, except a horticultural plant, whose cost (after GST credits or adjustments) as at the end of the income year in which it starts to be used for a taxable purpose is less than $1,000 (subsection 40-425(2) of the ITAA 1997).

The cost of a depreciating asset consists of two elements. The first element is worked out at the time you begin to hold the asset and includes its acquisition cost. The second element includes amounts paid, since starting to hold the asset, that have contributed to its present condition and location (sections 40-175 to 40-190 of the ITAA 1997). The first element cost of the carpet was $800 and there has been no second element cost.

As the carpet had a cost of less than $1,000 for the 2002-03 income year, when it was first used for a taxable purpose, the carpet is a low-cost asset under subsection 40-425(2) of the ITAA 1997.