Owning an investment property can be a huge financial commitment. Many property investors choose to invest either with their partners, family members or business partners. When there is more than one owner, all expenses and deductions are split and proportioned to each individual owner. This can make investing in property more affordable with one of the biggest deductions available for all property investors being the property depreciation deduction.
The ATO allows property investors to claim deductions for the wear-and-tear on either their residential or commercial investment property. Property depreciation falls under into two legislative categories, Division 40 – structural claims and Division 43 – claims for the plant and equipment items. This deduction for residential investment property owners can total thousands and for commercial investment properties it can total thousands, if not hundreds of thousands of dollars in deductions.
Where there are two or more owners of an investment property, they are entitled to claim their portion of the ownership they have over the investment property.
For example, one of the most common portions of ownership is a 50/50 split. Harry and Esther own a residential investment property together. Their portion of ownership is 50/50 so, they can each claim 50% of the total deductions for their property depreciation deduction.
Here at Capital Claims Tax Depreciation when we have more than one owner, we can produce a ‘Split Depreciation Schedule.’
A split depreciation schedule is a single report which includes multiple sets of depreciation schedules that are splitting the depreciation deductions for each individual owner. One set of schedules is created for each entity that shows the specific claims they are able to make for property depreciation deductions.
Our Capital Claims Tax Depreciation Report will have individual sets of depreciation schedules and results for each property owner. If we look at Harry and Esther who have a 50/50 split, there will be two sets of schedules included. This split is continually referenced throughout your tax depreciation schedule.
When you go to our Table of Contents page, there will be an item line for each property owner with both a clickable link (within the PDF document) and page reference for that owners specific results. See below:
Additionally, there is a clickable link (within the PDF document) in the footer of each property investor results which can return you to the main menu as well as a highlighted yellow statement that will link directly to the matching schedule type for other property owners –
Note: These figures relate solely to Harry Demir. To view the deductions for other parties listed within this report, please refer to the following links: Esther Demir for their detailed schedule.
Remember when looking at the schedules that these are the total deductions for that owner only! Sometimes clients may not remember this and will question if the results are too low for their property. If in doubt, check to the top right-hand corner to see if it is a split report and these results are just a portion of the total deductions available for the property.
There is no need for you to work out the split. If there were four owners of an investment property, there would be four results within our tax depreciation schedule.
One key benefit of a split depreciation schedule is that each of the owners can often claim higher deductions earlier for brand-new plant & equipment assets (Division 40). The reason for this is the benefit of Diminishing Value depreciation techniques such as immediate write off for assets under $300, low-value and low-cost pooling of assets.
For example, a brand-new plant and equipment asset is valued at $500 and has an effective life of 8 years, it is then split 50/50 and each client will now have a portion of that asset that is valued at $250. This can be immediately written-off in year one rather than being included in the low value pool or depreciating over its initial effective life.
Likewise, any asset that costs less than $1,000 or who’s value falls below $1,000 will fall into the low-value pool and depreciate with other low value items at an accelerated rate of 18.75% in the first year and in the following years it will depreciate at the rate of 37.5%.
For example, an air conditioner that had a value of $1,958 will split to 50/50. Now each client will now have a portion of that asset that is valued at $979 which will pool accordingly and depreciate faster.
Harry and Esther purchased a brand-new 4 bedroom house, that settled on 28th of January 2021. The own 50% of the property each. Below we look at the results of a tax depreciation schedule that has not been split and Harry and Esther split depreciation schedule results.
Here you will see the difference in the accelerated deductions that is claimable upfront for Harry and Esther.
Capital Claims Split Depreciation Schedule – Harry’s Results for his 50% ownership
Standard Depreciation Schedule with no split identified – Harry’s and Esther’s Results 100%
As you can see from above, a split depreciation schedule offers significantly different results than the 100% tax depreciation schedule. When ordering a tax depreciation schedule from a provider, make sure that a split depreciation schedule is an option for you.
If you would like to discuss your investment property scenario with our friendly team, give us a call on 1300 922 220. We can give you are personalised quote plus an estimate of what tax depreciation deductions are available. This is a free service that we offer. You can also complete an online quote here.
Mark is an expert quantity surveyor, business owner, public speaker and property developer. With 20+ years experience in the construction and quantity surveying industry Mark’s specialist expertise have been sought in consultant capacity by professional bodies such as the National Institute of Accountants and the National Tax and Accountants Association, and he has presented at various property and tax seminars and expos nationwide. Mark holds a Bachelor of Construction Management from the University of Newcastle, is an affiliate member of the Australian Institute of Quantity Surveyors and a Registered Tax Agent.View all posts by Mark Wilkins