Joint ownership of an investment property can significantly influence how depreciation claims are handled. When multiple parties own a property, each owner must claim depreciation proportional to their ownership interest. This applies to both plant and equipment under Division 40 of ITAA 1997 and capital works under Division 43.
Under these divisions, the total depreciation amount must be divided according to the ownership percentages. This ensures that each owner only benefits from the tax deductions relating to their portion of the property. A common misconception is that joint owners can claim the full depreciation individually; however, this is incorrect and can lead to issues with the ATO.
To see how this plays out, consider a practical example involving a 2010-built three-bedroom house in Geelong, purchased for $750,000. If two investors each own 50% of the property, each can only claim 50% of the total depreciation. Suppose the total depreciation across plant and equipment and capital works is $15,000 for the year. Each owner would claim $7,500 as their depreciation deduction. If one owner is in the 37% tax bracket, this results in a tax saving of $2,775 for that owner in the first year.
In our experience reviewing thousands of properties across Australia, we often see joint owners overlooking the need for individual depreciation schedules. Many assume a single report suffices, but tailored schedules are crucial for accurate claims. Another frequent oversight is failing to update ownership percentages after changes like refinancing or selling a share, which can lead to incorrect claims.
The answer can differ depending on your situation. For properties acquired post-9 May 2017, second-hand residential property owners cannot claim Division 40 deductions on previously used assets. If the property is owned by a Self-Managed Super Fund (SMSF), different rules may apply regarding the proportion of deductions. Additionally, in cases of unequal ownership percentages, the depreciation split must reflect the specific ownership ratio, not an assumed 50/50 split.
When it comes to depreciation claims, nuances in ownership structures and tax implications mean that a Chartered Quantity Surveyor and an accountant working together can ensure that your claims are both maximised and compliant. They can guide you through changes in legislation, ownership adjustments, and specific asset categorisations.
To make the most of your joint ownership situation, consider these steps: