Capital Allowances: immediate deduction for jointly held depreciating assets costing $300 or less

Can the taxpayer immediately deduct, pursuant to subsection 40-80(2) of the Income Tax Assessment Act 1997 (ITAA 1997), the cost of their interest in a depreciating asset they started to hold jointly if the cost of their interest is $300 or less even though the cost of the asset exceeds $300?

Yes. The taxpayer can claim an immediate deduction for the cost of their interest in the depreciating asset because section 40-35 of the ITAA 1997 treats their interest in the asset as the asset for the purposes of Division 40 of the ITAA 1997.

The taxpayer jointly owns a rental property to the extent of 50%. In the 2001-02 income year, they jointly purchased for the property a new oven costing $600. In accordance with their ownership interest in the rental property, the taxpayer contributed $300 to the purchase of the new oven.

For a depreciating asset that is a 'partnership asset', the asset is held by the partnership and not by any particular partner (item 7 of the table in section 40-40 of the ITAA 1997). In this context, the words 'partnership asset' carry their common law meaning. That is, they refer to assets of a partnership that are used for the purpose of the business carried on by the partnership. The words 'partnership asset' do not extend to assets that are merely co-owned even though their co-ownership and their employment for the purpose of receiving income jointly may be enough to recognise a partnership for income tax purposes (see definition of partnership in subsection 995-1(1) of the ITAA 1997). In the circumstances of this case, the taxpayer is not carrying on a business in partnership ( Cripps v FC of T 99 ATC 2428; (1999) 43 ATR 1202) but is merely undertaking a passive investment (Taxation Ruling IT 2423).

For depreciating assets that are co-owned but are not partnership assets, section 40-35 of the ITAA 1997 applies to the asset as if your interest in the asset is the relevant asset for the purposes of Division 40 of the ITAA 1997. This leads to the result that each co-owner must treat their depreciating asset (their interest in the underlying asset) in accordance with their own tax profile. Generally, that would require the taxpayer to work out the cost, effective life and choose a method to work out the decline in value of the depreciating asset that is their interest and to claim, in their own income tax return, the appropriate deduction for that decline in value. Provided the other requirements of subsection 40-80(2) of the ITAA 1997 are satisfied, the decline in value of the taxpayer's interest in the underlying asset in the present case is the cost of their interest because its cost does not exceed $300.