Issue
Should a small business taxpayer be able to allocate plant acquired after 1 July 2000 and costing more than $300 but less than $1000 to a low-value pool under Subdivision 42-M of the Income Tax Assessment Act 1997 (ITAA 1997), if the item of plant is used to produce assessable income for the taxpayer's rental property during 2000-01 income year?
Decision
No, a taxpayer who is a small business taxpayer is not able to allocate any plant to a low value pool for the income year ended 30 June 2001 as per subsection 42-460(2) of the ITAA 1997.
Facts
A small business taxpayer has a primary production business. In addition, the taxpayer earns salary and wages and derives income from rental property investments.
Reasons for Decision
Section 42-15 of the ITAA 1997 allows a taxpayer to deduct an amount for depreciation of a unit of plant for an income year if the taxpayer is its owner and the taxpayer uses it, or has it installed ready for use, for the purpose of producing assessable income. If the taxpayer is a small business taxpayer as defined under section 960-335 of the ITAA 1997 and the cost of plant does not exceed $300, the taxpayer must deduct that cost pursuant to paragraph 42-167(2)(a) of the ITAA 1997.
Low value pooling is available to some taxpayers as provided for in Subdivision 42-M of the ITAA 1997. A small business taxpayer, however, is restricted by subsection 42-460(2) of the ITAA 1997 from allocating plant to a low value pool. Accordingly, a small business taxpayer with plant being used in a rental property that costs more than $300 but less than $1,000 must deduct its cost over the plant's effective life. As such, plant is not eligible for accelerated depreciation pursuant to subsection 42-345(1) of the ITAA 1997. The plant's effective life can be self assessed or determined as specified by the Commissioner's determination according to Taxation Ruling TR 2000/18.