When multiple individuals own a property, they can each claim depreciation, but only in proportion to their ownership interest. This applies to both Division 40, which covers plant and equipment, and Division 43, which addresses capital works. The Australian Taxation Office (ATO) requires that depreciation claims be apportioned according to each owner's percentage of ownership, ensuring that the total claim does not exceed 100% of the allowable depreciation.
A common misconception is that both owners can independently claim the full depreciation amount, which is incorrect and could lead to compliance issues. Instead, each owner must calculate their depreciation entitlement based on their ownership stake. For example, if two individuals own a property equally, each can claim 50% of the depreciation.
To see how this plays out, consider a practical example: Take a 2015-built townhouse in Richmond, Melbourne, jointly owned by two investors, each with a 50% stake. The property was purchased for $800,000, with plant and equipment valued at $50,000 and capital works at $300,000. In the first year, the total depreciation is calculated at $15,000 for plant and equipment and $7,500 for capital works. Each owner can claim $7,500 for plant and equipment and $3,750 for capital works. At a 37% marginal tax rate, each owner reduces their tax bill by $4,162.50 in the first year.
In our experience reviewing thousands of properties across Australia, we often see investors overlook the importance of accurately apportioning depreciation claims. Many assume they can claim more than their share, leading to ATO audits and penalties. Additionally, some investors fail to update their depreciation schedules when ownership percentages change, such as when one owner buys out the other. Another common oversight is not claiming depreciation at all due to misunderstanding eligibility based on ownership structure.
The answer can differ depending on your situation. For properties acquired after 7:30 pm AEST on 9 May 2017, second-hand residential properties cannot claim Division 40 depreciation on previously used plant and equipment if purchased by new owners. Pre-existing owners are grandfathered under the old rules. If the property is held in a Self-Managed Super Fund (SMSF), the depreciation must also be apportioned according to the fund’s ownership stake. Different rules may apply for commercial properties or if the property is used for business purposes.
Given the complexities involved, it is advisable to consult both a Chartered Quantity Surveyor and an accountant to ensure accurate and compliant depreciation claims. They can help determine the correct division of depreciation based on ownership stakes and provide tailored advice on how to maximise your deductions.