When you are the sole owner of a property, you are responsible for all the good and bad regarding that property. The Australian tax depreciation rules in this matter are well documented and well understood. But when there is a split ownership structure, many related things are affected. An accurate tax depreciation schedule is called for in such situations. When this is done, it helps those multiple owners to maximize their depreciation and minimize tax. The baseline in such situations is calculated as per the shareholding or stake of the owner in said assets. Let us understand this with an example.
How split depreciation works?
The first thing to know is that any assets with a value lower than $300 are usually written off at once. This means that the impact would be in Year 1 after that asset is installed. But if the asset has two joint owners, then that threshold is at $600. Again, for a single owner, an element called a low-value pool must be kept in mind. This refers to properties that are valued at under $1000. The depreciation allowed in Year 1 is 37.5%. For a 50:50 joint ownership of such a low-value pool asset, the threshold value goes up to $2000. Low-value pool assets of up to $2000 under joint ownership can then be written off in Year 1. These are the rules that must be kept in mind while preparing depreciation schedules for rental property.
Let us understand with the following two scenarios:
a) Understanding split depreciation rules with an example (50:50 share)
Let us take an example of a young couple who purchase an investment property jointly after they get married. The ownership is equally held in the ratio 50:50. This means that when it is time for depreciation to be calculated, the total depreciation will be shared equally by them. So for an antique mirror costing $190, or for a teak coffee table worth $100, the Year 1 deduction will be 100%. But if they have installed an air condition worth $650, they can both claim Year 1 depreciation only on their individual share of $325.
b) Understanding split depreciation rules with a three-way split (one third)
Let us consider three brothers who hold the property jointly. While claiming depreciation on investment property, the calculation would be slightly different. Let us consider the impact on the low-value pool. Let us consider an air conditioning system they have installed. Let us assume that it cost them $2700. If the house had only one year, and they followed the regular depreciation method, then they would claim a regular 20% every year. But because they are three owners, they would each be liable for only $900 each. This would entitle them to an accelerated deduction in Year 1 (18.75%) and 37.5% every year after that.
If you have a tax depreciation investment property, and there are multiple ownerships, then you can reap better tax savings. Two examples are detailed above. This is why you must use a reputed firm with certified quantity surveyors. This ensures that you will get yourself the best deal possible.