Capital Allowances: holder of common property depreciating assets - NSW

Does a unit owner hold, under section 40-40 of the Income Tax Assessment Act 1997 (ITAA 1997), a depreciating asset that forms part of the common property of a residential unit complex on freehold land in New South Wales (NSW)?

Yes. The taxpayer does hold, under section 40-40 of the ITAA 1997, a depreciating asset that forms part of the common property of a residential unit complex on freehold land in NSW.

The taxpayer owns a unit in a residential unit complex in NSW on freehold land. The unit is rented (or available for rent) on a commercial basis at all times. There are ten units in the complex which features a swimming pool, tennis court and change rooms.

During the income year the body corporate has acquired a number of door closers that are identical in colour, size and function. They have been purchased individually. The total cost of the door closers is $500.

These door closers form part of the common property of the residential unit complex and the portion of the cost of these door closers attributable to each unit owner's interest is $50.

Broadly speaking, section 40-25 of the ITAA 1997 allows a holder of a depreciating asset an annual deduction for the decline in value of the asset.

The table in section 40-40 of the ITAA 1997 identifies the holder of a depreciating asset in any particular circumstance. In broad terms a holder of a depreciating asset is its economic owner. In most cases the economic owner will also be the legal owner.

The legal ownership of common property varies according to different State strata titles legislation. Income Tax Ruling IT 2505, entitled Bodies Corporate Constituted Under Strata Title Legislation, explains that ownership of common property in NSW is vested in the body corporate as agent for the proprietors (section 20 of the Strata Schemes (Freehold Development) Act 1973 (NSW)). Therefore the unit owners in NSW are the holders of depreciating assets that form part of the common property under item 10 of the table in section 40-40 of the ITAA 1997.

Subsection 40-35(1) of the ITAA 1997 applies to a depreciating asset that is held by more than one entity. It treats each entity's interest in the underlying asset as if the interest were itself the underlying asset. This means that the taxpayer's interest in a depreciating asset that forms part of the common property is treated as if their interest is the underlying asset.

Therefore, the taxpayer does hold a depreciating asset that forms part of the common property of a residential unit complex on freehold land under section 40-40 of the ITAA 1997.