The rise in popularity of granny flats can be attributed to two things: in part state-level legislative changes regarding secondary dwellings which aim to boost housing affordability in capital city areas and also because of their affordability and capacity to achieve high rental yields. Data from our depreciation schedules suggest that while the average granny flat will cost $121,000 to construct, the owners can usually achieve a 15% rental yield on this investment.
In order to maximise the benefit of this yield, it is important for granny flat owners to understand their depreciation entitlements. When a secondary dwelling is income-producing the owner is entitled to substantial deductions due to the wear and tear of the building structure and the plant and equipment assets contained, even if they are currently occupying the primary residence on the property.
Research conducted by BMT Tax Depreciation has shown that the average first year depreciation deduction for a granny flat is $5,288, accumulating to $23,713 in deductions over the first five years of ownership. Shared areas between the granny flat and owner-occupied property such as patios, pools and barbecues may also entitle the owner to additional depreciation deductions, claimed based on the tenant’s usage percentage.
As each state or territory provides their own legislative requirements, including the land and plot sizes of a secondary dwelling or granny flat, the table below provides a summary to assist investors and also outlines the average first year depreciation deductions which can be found for properties of these sizes.
Investors who are evaluating the cash flow potential of constructing a granny flat or a secondary dwelling on their property for rental purposes should speak with a specialist quantity surveyor for advice. They will be able to provide an estimate of the depreciation deductions which will become available once the property is available for rent. It is also recommended to speak with an accountant for advice on any of the capital gains tax implications of investing in a granny flat as there are a number of factors investors should be aware of if they ever decide to sell their home or subdivide the property later down the track.
Those who already own and rent a granny flat or secondary dwelling should also obtain a tax depreciation schedule from a specialist quantity surveyor which outlines the depreciation deductions they will be able to claim when they visit their accountant to perform their annual income tax assessment.
To learn more about tax depreciation for any investment property, visit the BMT Tax Depreciation website. Alternatively, for obligation free advice, contact one of the expert staff at BMT Tax Depreciation on 1300 728 726.
– Bradley Beer is the managing director of BMT Tax Depreciation. A depreciation expert with over 16 years experience in property depreciation and the construction industry.