Question Tag: Pooling System

The pooling system for depreciable assets involves the following implications and tax rules:

1. Identity of Assets Lost in Pooling: Once assets are placed in a pool, their individual identities are lost. Assets are grouped together based on their class, and capital allowance is applied to the pool as a whole.
2. Reducing Balance Method: Capital allowance is calculated using the reducing balance method, where the written-down value of the pool is depreciated each year.
3. Treatment of Proceeds from Asset Disposal: When an asset is sold, the consideration received is deducted from the pool. The difference between the disposal proceeds and the pool’s depreciation basis at the end of the year is either included in income or claimed as a capital allowance.
4. Dissolution of the Pool: If all assets in a pool are sold or realized before the end of a year of assessment, the pool is dissolved, and the gain or loss is calculated based on the difference between the consideration received and the remaining depreciation basis.

The formulas governing these are as follows:

• If A > B, the difference is included in the taxpayer’s income.
• If B > A, a capital allowance is granted.

Where:

• A is the consideration received during the year for the assets.
• B is the sum of the written-down value of the pool at the end of the previous year and any additions to the pool during the year.