Question from Ernest updated on 23rd January 2015:
A property is jointly owned by a husband and wife with its earnings/losses divided between the two parties. When the property is sold, can the recovery of the entire amount of building depreciation be reported for depreciation recovery by the lower earning spouse only? Reason being that an equal split of the building depreciation claimed would shift the higher earning spouses income into a much higher tax bracket.
Our expert Mark Withers responded:
Where a partnership arrangement has been put in place with a 50/50 splitting arrangement, this will need to remain consistent and should not be altered simply because it is self serving to do so. When determining if the result from a jointly held property should be split evenly case law suggests the commissioner takes into account whether contributions to the investment are made from matrimonial income and who is recorded as an owner on the title to the land and whether both parties are jointly liable for the mortgage. In most cases this ensures that partnerships between husband and wife split income earned 50/50.
Mark Withers and his team at Withers Tsang & Co specialise in advising on property related transactions, valuation and restructure services and tax planning.