Granny Flats & Tax Depreciation – What can you claim?

Granny Flat

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.

This 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 being 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 given the apportionment of development application fees being on a smaller size, and percentage of bathroom areas and other high cost components tend to be larger than within a house containing larger open spaces. 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 – Range hoods
  • 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.