Capital Allowances: Low-value pools - allocating substantially identical assets

Can a depreciating asset which cost less than $1,000 be allocated to a low-value pool under section 40-425 of the Income Tax Assessment Act 1997 (ITAA 1997) even if the total cost of all substantially identical items acquired by the taxpayer in that income year exceeded $1,000?

Yes. Regardless of the total cost of all substantially identical items acquired during the income year, if the item is a depreciating asset which cost less than $1,000 and the cost is not immediately deductible under subsection 40-80(2) of the ITAA 1997, it can be allocated to the low-value pool under section 40-425 of the ITAA 1997, provided the other conditions of the provision are met.

A taxpayer acquired, in one purchase, several blinds for the windows in a rental property. The cost of each blind was between $100 and $500, but the total cost of the blinds exceeded $1,000.

The blinds are substantially identical as they are: all venetian blinds attached to the window in the same way and made by the same company in the same colour and material.

The only difference between the blinds is their size, which is dictated by the size of the window in the relevant room.

Subsection 40-425(1) of the ITAA 1997 gives taxpayers the choice to allocate low-cost assets to a low-value pool for the income year in which they start to use them, or have them installed ready for use, for a taxable purpose.

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

Whether a particular item is a depreciating asset is a question of fact and degree which is determined in the light of all of the circumstances of the particular case. In some situations an item may be part of a larger depreciating asset and not be a depreciating asset by itself.

In this case, each of the blinds is a separate depreciating asset. As their costs range from $100 to $500, each of the blinds meets the definition of a low-cost asset provided in subsection 40-425(2) of the ITAA 1997.

A deduction is not allowable under section 40-425 of the ITAA 1997 if the expenditure meets the requirements for an immediate deduction under subsection 40-80(2) of the ITAA 1997.

The taxpayer's expenditure on the blinds does not qualify for an immediate deduction under subsection 40-80(2) of the ITAA 1997. The expenditure fails to meet the conditions of that provision. In particular, the total cost of substantially identical items that the taxpayer started to hold in the income year exceeds $300.

As each depreciating asset has cost less than $1,000 it can be allocated to the low-value pool under section 40-425 of the ITAA 1997.

For the purposes of allocating depreciating assets to the low-value pool under section 40-425 of the ITAA 1997, it is not by itself determinative if identical, or substantially identical, low-cost assets are acquired by the taxpayer during the income year.

Taxation Ruling TR 94/11