What Can You Claim - Granny Flats and Tax Depreciation?

If you've built a granny flat or are considering one, you'll be interested to note that the depreciation deductions can be significant. Whilst we’ve seen granny flats from under $100,000 to more than three times that in value, let’s take a look at an exceptionally average one to see what the deductions are worth. The following example was a property in Western Sydney.

As you can see from the picture below, it was a fairly simple and cost-efficient type of construction.

From a depreciation perspective, a granny flat normally contains everything you’d expect in your average house. A bathroom, kitchen, floor coverings, window furnishings and the like. You can make out a hot water system from the picture, and there was a pump attached to the water tank as well.

The total construction cost for the granny flat came in at a pretty economical $112,800, with a $5,500 fence installed on top of this a few days later. In terms of cost per square metre, the cost is a little higher than an average house due to D.A. fees being higher per square meter. Also due to the size, the lineal meters of internal walls is higher in smaller areas, as well as the percentage of wet areas over whole gross floor area. That is to say, a house contains larger open spaces than a granny flat in general, which lowers the cost per square metre. The difference equates to about $300 more per square metre in a granny flat.

The plant and equipment items consisted of:

• Bathroom Assets
• Freestanding Accessories
• Ceiling Fans
• Exhaust Fans (inc. Light & Heating)
• Hot Water Systems
• Kitchen Assets – Cooktops
• Kitchen Assets – Ovens
• Kitchen Assets – Rangehoods
• Light Shades, Removable
• Pumps
• Smoke & Heat Alarms
• Window Blinds, Internal
• Window Curtains

Interestingly, the whole floor was tile, which in the end minimised the deductions for the first few years of claim, as tile depreciates at 2.5% of its value per year, whereas carpet would normally be 20%. Still, in the first full year of claim, the $11,178 worth of plant and equipment assets equated to over $2,300 worth of deductions. Had the property been constructed on the 1st of July, that figure would have been over $2,500.

The building component came in at $101,622 and net result for the first full financial year was total depreciation being just over $5,000.

The first year allowed for 259 days of claim within that financial year and it achieved over $4,100. The total for the first 5 years of claim was $21,095. Not bad considering the average finishes and size of the granny flat.

So if you’ve taken the plunge and invested in a backyard granny flat, be sure to take advantage of the solid deductions available. Based on an average income, you could see around $6,000 – $7,000 back in your pocket!

*Note: Average income figures sourced from ATO and figures are shown as a guide only. Your individual tax situation is complex and an accountant’s advice should be sought. These figures should not be relied upon.