Practical Tax Example: Small Business Depreciation – General Pool

Planks of Wood

The Example: Jacki Chiles is a sole proprietor manufacturing furniture and trading as Pendant Furniture. His annual turnover is $1.4m and he qualifies as a small business entity. At the commencement of the 2015/16 year the opening balance of his general small business pool was $28,000. Jacki seeks advice on the taxation treatment of the following transactions in his small business pool for the 2015/16, 2016/17, 2017/18 and 2018/19 tax years.

The transactions

01 August 2015: Jacki purchased a new Lexus motor vehicle at a cost of $35,000 with 70% business usage and an effective life of five years. Its decline in value will be calculated using the diminishing value method.

12 September 2015: Jacki purchased a new machine for assembling furniture. The machine was used 100% in the business and was estimated to have an effective life of eight years. The cost of the machine was $200,000.


11 November 2016: Jacki made an addition to a woodworking machine, purchased some years ago, at a cost of $75,000.
15 March 2017: Jacki installed a 3D printer to assist in the design of the furniture that he manufactures. The printer cost $24,000.

01 April 2018: Jacki sold the Lexus motor vehicle for $26,000.

01 July 2019: Jacki purchased an additional assembling machine for $15,000 which was used 100% in the business.

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The tax provisions/rules

  • Subdiv 328-D provides concessional and simpler depreciation rules for SBEs.
  • The current requirements to qualify as an SBE are that businesses aggregate turnover must be less than $10m (ITAA97 328-110).
  • The provisions provide for immediate write-offs, a general small business pooling arrangement and simplified balancing adjustments on the disposal of assets.
  • An immediate deduction is available for a low-cost asset in the income year in which it was first used, or installed ready for use for a taxable purpose.
  • Apportionment is required where assets are used for both business and private use.
  • It is only the business proportion that is considered in calculating the decline in the asset’s value and termination value on disposal of the asset.
  • Assets added to the general small business pool during the income year are depreciated at 15% (s 328-190(2)), while the opening pool balance is depreciated at 30% (s 328-190(1)).

An immediate deduction can be applied to:

  • An asset costing less than $20,000 — where the asset was acquired on or after 7.30 pm on 12 May 2015 and first used or installed ready for use between 7.30 pm on 12 May 2015 and 28 January 2019.
  • An asset costing less than $25,000 — where the asset was acquired on or after 29 January 2019 and first used or installed ready for use between 29 January 2019 and 7:30 pm on 2 April 2019.
  • An asset costing less than $30,000 — where the asset was acquired on or after 7:30 pm on 2 April 2019 and first used or installed ready for use between 7:30 pm on 2 April 2019 and 11 March 2020.
  • An asset costing less than $150,000 – where the asset was acquired on or after 12 March 2020 and first used or installed ready for use between 12 March 2020 and 30 June 2020, or
  • An asset costing less than $1,000 — in any other case (s 328-180(1)).

The opening pool balance at the commencement of one year is the closing pool balance from the previous year. The closing pool balance (ITAA97 s 328-200) is calculated by starting with the opening pool balance and:

Adding to that figure, the business use proportion of the adjustable value of each new asset or asset improvement that was first used in that year, then.
Subtracting from that figure the:

(ii) Deductions for the pool’s depreciation for the year (s 328-190(1)), and

(iii) Deductions for depreciation on an asset or improvement allocated to the pool used or installed ready for use for a taxable purpose during the year.

  • Where the general small business pool is between $0 and $1,000, the balance is written-off immediately, instead of claiming the 30% deduction (s 328-210(1) and 328-210(2)). If the pool balance would be less than $0 due to balancing adjustment events, the negative amount is added to assessable income (s 328-215(2)) and the pool’s balance reverts to zero (s 328- 215(3)).
  • However, for an income year that ends during the period 12 May 2015 to 30 June 2018, a deduction for the pool balance can be claimed in the income year where the balance of the pool, prior to the calculation of the depreciation for that income year is less than $20,000.
  • For the income year that ends on 30 June 2019, a deduction for the pool balance can be claimed in the income year where the balance of the pool prior to the calculation of the depreciation for that income year is less than $30,000.
  • For the income year that ends on 30 June 2020, a deduction for the pool balance can be claimed in the income year where the balance of the pool prior to the calculation of the depreciation for that income year is less than $150,000.

Jacki Chiles is advised he is entitled to depreciation deductions in relation to assets in his general small business pool of $42,075 (2015/16), $77,977 (2016/17), $69,434 (2017/18) and $43,144 (2018/19). He is further advised that the opening value for his general small business pool on 1 July 2019 is $100,670.

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