How does depreciation work with common property?
Can an owner claim depreciation on common property?
Most investors (landlords and commercial lot owner/operators) engage a licensed quanitity surveyor to calculate the depreciation deductions available on their respective unit or house. In a strata building however there are also additional deductions available on the common property and our team have seen this opportunity regularly missed when the quantity surveyor is not specifically on the lookout for it.
Common property comprises physical assets. Think elevators, staircases, airconditioning etc (it all depends upon how the strata plan has been drawn up). Like the liability for paying levies, an owner's entitlement to these assets is calculated based on their percentage of ownership. So, it therefore stands to reason that owners who use their lot to derive an income (be it rent or business income) are entitled to claim depreciation on these assets.
Common property assets depreciate in the same way as any other part of the property. There are two broad categories:
- Plant and equipment assets in common property; and
- The structural portion of common property - which generally depreciates over 40 years depending on the construction date and purpose of the building.
The rate of depreciation on plant & equipment cascades depending upon the dollar value of an owner's entitlement. If the dollar value is low, then the depreciation can be claimed at a faster rate than if it is high. This presents an excellent opportunity for common property in strata to be claimed at a quicker rate because only the owners' percentage interest needs to fall into the 'lower' category to be eligible for immediate (or at least accelerated) depreciation rates... not the total value of the asset.
Strata companies who have not already done so could consider engaging a quantity surveyor to prepare a tax depreciation schedule on the common property and provide it to all owners in the event that there are several investor owners who do not have such assets listed on an existing schedule. Further bulk discounts could even be available if investor owners get a schedule of their own lot at the same time and go through a surveyor that is flexibile in their pricing model. We encourage decision makers to keep in mind however that only investor owners stand to benefit from such an exercise.
Quick Takes:
- Depreciation deductions on common property assets are available to investor owners... often at rates that exceed those available if they own the asset themselves in full.
- Quantity surveyors preparing a schedule will sometimes only include assets pertaining to a particular lot. So, it's worth specifically requesting they explore common property entitlements if you're getting one prepared as an individual lot owner.
- Bulk discounts may be available for strata companies that approach a quantity surveyor to prepare a tax depreciation schedule for all common property as well as any owners who want one on their lot at the same time.
- If proposing that the strata company pay for a bulk common property depreciation schedule, do keep in mind that only investor owners stand to benefit.
For more information, please contact the Ascend office via your strata manager.
Links:
- Depreciation in Strata Financials
The above content is of a general nature and should not be relied upon as professional advice. Ascend encourages readers to seek advice from suitably qualified professionals in relation to their specific circumstances and not to rely solely on the information provided above. Please contact our office for more information.
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