Determining depreciation deductions on an investment property with multiple owners can create a complex tax situation. A BMT Tax Depreciation schedule makes life easier for Accountants by splitting up depreciation deductions, regardless of how many owners have a share in a property.
A survey compiled by Mortgage Choice found 71% of respondents indicated they would be purchasing their investment property with a partner, sibling, parent or friend. When multiple people buy a property they become either ‘joint tenants’ or ‘tenants in common.’ Ownership structures can influence how depreciation deductions are calculated. BMT Tax Depreciation will ensure deductions are maximised for each ownership situation.
In this article we will look at:
Pooling for multiple owners
Legislation states that some assets within an investment property can be grouped together and written off at a higher rate. To qualify for these groups the asset’s value must fall below $300 or $1,000. Assets which fall under $300 are able to be written off immediately (this option is called the ‘immediate write-off’). Assets which fall under $1,000 are entitled to an accelerated depreciation rate of 18.75% in the year of acquisition and 37.5% per year there after (this option is called ‘low-value pooling’). Both options will be affected depending on the ownership structure of the property.
For example, in a 50:50 ownership situation, items under $600 can be written off immediately and items that are under $2,000 can qualify for the ‘low-value’ pool.
Three sisters decide to purchase an investment property together with a one third share each. The property has a split system air conditioner at a value of $2,600. Considering the one third share, the individual value of the split system for each sister is 33.3% x $2,600 = $867. This means that instead of depreciating at 20% under a normal diminishing method each year, it will qualify for the higher rate pool of 37.5% each year following the year of acquisition.
John and Mary purchase an investment property shortly after getting married. They purchase as joint tenants and their accountant apportions 50% of the total deductions to each of them. In this scenario, the ‘immediate write-off’ legislation affects their return.
For the ‘immediate write-off’, individual assets with a value of less than $300 can be written off as a 100% deduction in the year of acquisition. Their investment property has a mechanical door closer at $95 and ceiling fan at $290. Both of these assets will be written off as 100% deductions in the first year. However, they also have a room air conditioner with a value of $580. As they own a 50% share each, according to the Australian Taxation Office (ATO), they each own half the value of the room air conditioner, or $290 each. The 50:50 split means that they can both individually claim their share of the air conditioner as a 100% write-off with because their share is under $300 in value.
BMT Tax Depreciation case study
Two friends purchase a property with a 50:50 share. This example highlights the difference between simply halving the deductions and ensuring legislation is applied to each individual’s interest considering the 50:50 split.
After listing ten fixtures normally found in a residential property with a total value of $27,462, BMT Tax Depreciation conducted an assessment on the deductions.
The situation is identical except for the fact that the 50:50 split has been applied to each individual’s share, which has allowed for some accelerated depreciation. BMT’s 50:50 split report would save this investor an additional $2,099 in tax deductions over the first five years of owning the property. BMT Tax Depreciation are leading the way with this new approach to preparing our depreciation schedules and can take into account any split purchase percentages, including 50:50, 70:30 or even 1:99.
For more information contact our office to speak with one of our qualified tax depreciation specialists.