There are a number of ways in which people can own an investment property, this includes joint investment.
Typically when there is more than one individual owner, they are either a joint tenant or tenants in common. Many investors do not realise that ownership structures can influence how depreciation deductions are calculated.
There are many implications for maximising deductions. BMT Tax Depreciation are leading the way with tax depreciation schedules which ensure all ownership structures are accounted for.
Some assets within a standard investment property can be grouped together and written off at a higher rate, this is commonly referred to as pooling.
Assets can qualify for these groups if their value falls either below $300 or $1000. Assets which are valued $300 or less can be written off immediately and assets that are valued less than $1000 can be depreciated at a higher rate of 37.5 percent.
For example; John and Mary purchase an investment property shortly after getting married. They purchase as joint tenants and their Accountant apportions 50 per cent of the total deductions to each of them. In this case, the immediate write-off and low-value pooling legislation can significantly affect their scenario.
Any individual asset with a value less than $300 can be written off as a 100 per cent deduction in the first year of acquisition under the immediate write-off ruling. For example, if their investment property has a door closer valued at $95 and ceiling fan valued at $290, both these assets can be written off as 100 per cent deductions in the first year.
They also have an air conditioner at the property valued at $580. As they both own a 50 per cent share, according to the Australian Taxation Office the value of the air conditioner would be $290 each. The 50:50 split means that both individuals can claim their share of the air conditioner as a 100 per cent write-off, as their share of the asset would be less than $300 in value.
In the next example, three sisters decide to purchase an investment property together with a 33.3 per cent share each. Pooling legislation for individual property investors states that any individual asset which has a value of $1,000 or less is entitled to an accelerated deduction of 18.75 per cent in the year of acquisition and 37.5 per cent each year thereafter.
In the below example the property has two split air conditioning systems valued at $2,600 each. Due to the third share in this scenario, the value of each split system for the sisters is 33.3 per cent times $2,600, which equates to $867.
This means that instead of depreciating at 20 per cent under a normal diminishing method each year, the asset will qualify for the higher rate pool of 37.5 per cent each year, following the year of acquisition.
Refer to the table below to see how this extra deduction for the split system will add up:
Deprectiation%20Split.png" style="width: 600px; height: 143px;" />
It is worth noting that there may be thousands of dollars worth of assets that are valued over $1,000 and when divided into each owners interest could qualify for the low value pool.