It’s common for investment properties to be owned by multiple parties. This is known as joint or partial ownership.
This approach of shared ownership can offer a number of advantages and, in certain scenarios, reduce risks, making it an attractive option for some investors.
What is joint ownership and how does it work?
Joint ownership of an investment property allows multiple parties to own a share of a property. This can be achieved through different ownership structures such as joint tenants, tenants in common, or a trust.
Joint tenants is when a property is held in the name of two or more parties with right of survivorship and can refer to any combination of people. Each owner has equal shares.
Tenants in common is an arrangement when two or more people co-own the same property but with no right of survivorship over the other. The ownership proportion can be equal or unequal.
A trust is an arrangement where a trustee manages or holds a property for the benefit of one or more individuals or organisations (known as a beneficiary).
Each party to the joint ownership arrangement is responsible for their share of the mortgage repayments, maintenance costs, tax benefits and other expenses associated with the property. The parties can also agree on how the property will be managed, such as appointing a property manager or sharing the responsibilities themselves.
Why do people choose joint ownership?
Joint ownership of an investment property can be beneficial for a number of reasons, including sharing the costs of purchasing and maintaining the property, accessing greater borrowing capacity, and reducing risk. This type of ownership also allows investors to enter the market with less individual upfront cash.
How does depreciation work in properties with joint ownership?
There are differences in depreciation eligibility for properties with joint ownership.
Depreciation is available according to the proportion of ownership. For instance, if Investor A owns seventy per cent of an investment property and Investor B owns the remaining thirty per cent Investor A can claim seventy per cent of the depreciation deductions, while Investor B can claim the remaining thirty per cent.
Legislation allows properties with one owner to claim an immediate write-off for assets with an opening value of $300 or less. But when an investment property is co-owned, for example, in a 50:50 split of two parties, a split depreciation schedule allows the owners to each claim an immediate write-off for items where their interest in the asset is below $300. This allows owners to claim an instant asset write-off for items which are more than $300 in total value.
The same method can be used when applying low-value pooling. When an owner’s interest in an asset is less than $1,000, these items will qualify to be placed in a low-value pool. This means that these assets can be claimed at an increased rate of 18.75 per cent in the first year regardless of the number of days owned and 37.5 per cent from the second year onwards. In scenarios where ownership is split 50:50, by calculating an owner’s interest in each asset first, the owners will qualify to pool assets which cost less than $2,000 in total to the low-value pool.
The distribution of an asset’s value based on ownership percentages first will increase the number of assets for which investors are eligible for an immediate write-off or low-value pooling. This results in an accelerated rate of depreciation which will yield the owners increased deductions in the earlier years of ownership.
A BMT Tax Depreciation split schedule displays the deductible value of each asset as a total deduction for each year of the asset’s effective life, plus the deduction available to each owner per year based on their percentage of ownership of each asset.
For instance, a dishwasher in a property with a 50:50 split ownership will display a total first-year deduction of $500, plus a deduction of $250 available to each owner in that year.
For more information our comprehensive co-ownership case study outlines the depreciation deductions with and without a split schedule.
Having a correctly prepared split depreciation schedule is important to ensure all owners are deducting the correct amounts they’re entitled to. Especially in scenarios where an asset is not owned with a 50:50 split.
Depreciation rules can become tricky for property owned by multiple parties, which is why it’s important to get in touch with a specialist quantity surveyor, so claims are maximised and fully compliant with current Australian Taxation Office rulings and regulations.
BMT Tax Depreciation conduct site inspections so they can identity every available deduction to prepare comprehensive tax depreciation schedules.
To learn more about split depreciation schedules, call BMT on 1300 728 726 or Request a Quote.