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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?

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Advantages of a Low Value Pool

  1. 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.
  2. 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.
  3. All items in the LVP are depreciated as one instead of individually (simplifying your depreciation calculations especially if you have many items).
  4. 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

  1. 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).

  2. 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).

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