Co-owned properties with split schedules accelerate deductions

Co-ownership, or joint ownership, involves multiple individuals or entities jointly owning an investment property and sharing the associated costs, responsibilities, and returns. This approach allows investors to pool their resources, knowledge, and expertise to navigate the property market together.

It also enables investors to mitigate risk by sharing the expenses associated with acquiring and maintaining a property, while also gaining access to a larger borrowing capacity.

When a property is jointly owned and used as an investment, depreciation can be claimed by each co-owner based on their ownership share.

The capital works deduction (Division 43), the claim on the structural components of the property, is calculated based on the construction commencement date and building purpose. Plant and equipment (Division 40) covers the removable assets within the property. Each co-owner can claim depreciation on their share after a quantity surveyor has determined their individual values and appropriate effective lives.

Depreciation legislation allows co-owners to split an asset’s value by ownership percentage before making their claims. 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 that will yield the owners increased deductions in the earlier years of ownership.

Owners of one investment property can claim an immediate write-off for assets with an opening value of $300 or less. When an investment property is co-owned in a 50:50 split of two parties, a split depreciation schedule allows the owners each to claim an immediate write-off for items where their interest in the asset is $300 or less.

The same method can be used when applying low-value and low-cost pooling. When an investor’s interest in an asset is less than $1,000, these items will qualify to be placed in a low-value pool. This allows these assets to 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 that cost less than $2,000 in total to the low-value pool.

A split schedule displays the deduction available to each owner per year based on their percentage of ownership of each asset. The table below shows how a split schedule will increase deductions using two typical assets.

Having a correctly prepared split depreciation schedule is important to ensure all owners are claiming the correct amounts they’re entitled to, especially in scenarios where an asset is not owned with an even 50:50 split by each party.

To learn more about the deductions within a jointly owned investment property, call BMT on 1300 728 726 or request a quote at bmtqs.com.au/apply-online.