Skyrocketing property prices are driving a sharp increase in people pooling their resources to get onto the property ladder. By combining assets to achieve better buying power and a bigger deposit, siblings, friends and business partners are making property ownership a realistic goal.
If you choose to buy an investment property as a co-owner, you can also share ongoing costs and claim higher depreciation deductions at tax time.
Higher deductions? How?
With a split depreciation schedule.
All investment property owners can claim depreciation for capital works (structural elements such as bricks and concrete) and plant and equipment (carpets, fittings and fixtures).
By having a registered quantity surveyor prepare a split depreciation schedule for an investment property, co-owners can increase their cash return during the earlier years of the investment.
Higher deductions for co-owners can be achieved two ways:
Low value pooling
Individual plant and equipment items valued less than $1,000 are considered “low value” and can be depreciated faster and at a higher rate than items of greater value.
For example, a dishwasher would normally be depreciated at a rate of 20 per cent over many years of its useful life. However, if the dishwasher costs under $1,000, it can be depreciated at an annual rate of 37.5 per cent after the initial year of purchase.
By using a split depreciation schedule, two co-owners with a 50/50 share in an investment property can enjoy this higher rate of depreciation for a $1,999 dishwasher – as technically they each own a $999.5 share in the dishwasher.
Tax depreciation claims at this higher rate help slash each owner’s tax bill and can boost the cash return of the investment property for both owners.
Co-owners can split the cost/value of all depreciable plant and equipment items according to the ownership structure of their property investment. This can push more plant and equipment items to qualify for immediate write-off.
While most assets depreciate over several years, items that cost less than $301 can be claimed or “written off” in the financial year in which they’re purchased.
Co-owners with a 50/50 share in an investment property can immediately write of a $600 item ($300 each), reducing tax to be paid and boosting the investment property’s cash return for both owners.
Accurately calculating and claiming tax depreciation deductions can be complicated, which is why the ATO insists all tax depreciation schedules are completed by a registered quantity surveyor.
A tax depreciation schedule is a worthwhile investment that literally pays for itself and can put thousands of dollars back in your pocket.
About the Blogger
Mike Mortlock is a quantity surveyor and director of MCG Quantity Surveyors. MCG specialise in tax depreciation schedules and construction cost estimating for investors.