Growth in granny flats is golden when depreciation’s claimed



Recent figures from the NSW Department of Planning and Environment have indicated a surge in popularity for construction of granny flats.

The information shows that 4818 new granny flats were built in New South Wales in 2014. Nearly double the 2867 built in 2013 and three times more than the 1500 built in 2010.

These numbers are supported by an increase in demand for our tax depreciation schedules, indicating that many of these secondary dwellings being constructed are being used to produce income for their owners.

Data collected from BMT suggests that construction of granny flats in Western Sydney has increased by 24.1 per cent over the past two financial years, while across all of NSW there was a four per cent increase in the number of depreciation schedules requested for granny flats in the 2013/2014 financial year.

grannyGrowth in the number of depreciation schedules for granny flats isn’t limited to NSW. Over the past two financial years there has been a 9.3 per cent increase in depreciation schedules requested for these types of properties Australia-wide.

The rise in popularity of granny flats across Australia can be attributed in part to state-level legislative changes regarding secondary dwellings, which aim to boost housing affordability in capital city areas.

The year 2009 saw the Affordable Rental Housing – State Environmental Planning Policy (SEPP) come into force in NSW and Western Australia followed suit with its State Planning Policy 3.1 Residential Design Codes in August 2013. With these legislative changes, NSW and WA joined the Northern Territory, the Australian Capital Territory and Tasmania in allowing property owners to rent a secondary dwelling to those other than family members or friends.

Investors are also being attracted to granny flats due to their affordability and capacity to achieve high rental yields. Data from our depreciation schedules suggests that while the average granny flat will cost $121,000 to construct, the owners can usually achieve a 15 per cent rental yield on this investment.

In order to maximise the benefit of this yield, it’s 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’re currently occupying the primary residence on the property.

BMT research has shown that the average first year depreciation deduction for a granny flat is $5288, 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 provide 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.


*The first year deductions in this example are based on an average claim for a property of this size.

** Deductions based on a 60m2 plot size.

***In QLD, Vic and SA granny flats cannot be used as income-producing secondary dwellings.

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’ll be able to provide an estimate of the depreciation deductions that will become available once the property’s available for rent.

It’s 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 people 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, which outlines the depreciation deductions they’ll be able to claim when they visit their accountant for their annual income tax assessment.


About Bradley Beer

Bradley Beer (B. Con. Mgt, AAIQS, MRICS, AVAA) is the Chief Executive Officer of BMT Tax Depreciation. Bradley joined BMT in 1998 and as such he has substantial knowledge about property investment supported by expertise in property depreciation and the construction industry. Bradley is a regular keynote speaker and presenter covering depreciation services on television, radio, at conferences and exhibitions Australia-wide.

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Original author: Bradley Beer

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