Joint Tenants vs Tenants In Common

Joint Tenants vs Tenants In Common

When two or more people own a property together they may either own it as joint tenants or tenants in common. We often have clients ask us what the difference is between the two types of ownership.

What is the difference?

Generally speaking a joint tenancy ownership is one in which all parties have an equal interest in the property and there are no defined shares. Together, they own the whole property. Should something happen to one of the owners, their interest in the property passes to the other owner(s).

If two or more people own a property as tenants in common, they each own only their stipulated share of that property. Each owner has no control over the shares of the other owner(s) and the shares do not have to be equal. If one owner dies, their share does not automatically pass to the other owner(s) and they can leave it to whomever they wish in their will.

Some of the most common reasons to utilise a tenancy in common include:

  • The parties have contributed unequal amounts to purchase the property
  • The owners are friends, relatives or business partners
  • There are children from a previous marriage
  • One owner has a considerably higher income compared to the other and wants to take a bigger share of the negative gearing opportunities. (If the property is positively geared, the lower income earner may wish to have the larger share.)

There are a number of different legal and financial implications to be considered when choosing whether to purchase a property as joint tenants or tenants in common. There are also minor differences between states so it is important to speak with qualified professionals before making a decision such as this.

How do I know?

The short answer is if you don't know, it's probably a joint tenancy. Joint tenancy is usually the 'default' type of ownership unless specified otherwise.

Why is it important for my depreciation report?

When we prepare your depreciation report we need to know whether the property is owned jointly or as tenants in common. One of the main reasons this is important is because we will tailor the report to reflect each owner's share. This makes the report easier to understand and use for both accountants and investors but more importantly, is also essential in order to ensure that the figures are calculated correctly.

The ATO rules clearly state that when calculating the depreciation of assets for owners with different shares, the assets must be apportioned according to the ownership percentages before the depreciation rules are applied. This is particularly important when the percentages are say, for example, 99% and 1% as the person with 1% will be able to claim almost everything in the first year. The Low Value Pool calculations also depend on the asset's value falling below $1000 and when only a small percentage is owned, this will happen a lot faster, meaning that owner can claim more, sooner. Conversely for the 99% owner, it will take longer for the written down value of the asset to fall below $1000 and the asset will be depreciated over a longer timeframe.

See the Low Value Pool article for more information or contact us on info@writeitoff.com.au.

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