If I have some investment properties which are being negative geared and I buy some new capital items such as a dishwasher or an air conditioner for the properties, what are the advantages and disadvantages of creating a Low Value Pool to depreciate these items?
Advantages of a Low Value Pool
- Any new item purchased under $1000 can be added to a Low Value Pool (LVP) and be depreciated at 18.75% in the first year and 37.5% in following years.
- Any existing items depreciated by the Diminishing Value method and with a closing value at the end of the previous income year of less than $1000 can be added to the LVP and be depreciated at 37.5% straight away.
- All items in the LVP are depreciated as one instead of individually (simplifying your depreciation calculations especially if you have many items).
- The one LVP can be used for all areas of your Tax Return, including your work related deductions and rental property deductions.
Disadvantages of a Low Value Pool
Once you start a LVP you have one for life and any new items purchased under $1000 must be added to the LVP, even if they could have been depreciated at a higher percentage outside of the LVP (for example, a new laptop computer purchased for under $1000 with an effective life of 3 years could be depreciated at 66% outside of a LVP, but if a LVP is already open you have to include it in the LVP and depreciated at 18.75% in the first year and 37.5% in subsequent years).
Any item depreciated under the Prime Cost method cannot be added to the LVP (which includes software which can only be depreciated using the Prime Cost method).