What Are The Tax Benefits Of Building A Granny Flat
In Sydney, there are several potential tax benefits associated with building a granny flat. It's important to note that tax laws and regulations can change, so it's advisable to consult with a tax professional or accountant for personalized advice. Here are some potential tax benefits you may consider:
Depreciation: When you construct a granny flat, you may be eligible to claim depreciation deductions on the building and its fixtures and fittings. Depreciation refers to the gradual wear and tear of a property and its assets over time. A quantity surveyor can help you assess the depreciable value of the granny flat, and you can claim deductions for the decline in value each year. We often work with Washington Brown who can provide a depreciation schedule for you to use or provide to your accountant.
Rental Income and Deductions: If you rent out the granny flat, the rental income generated will be taxable. However, you can also claim deductions for expenses incurred in relation to the rental property, such as interest on loans, council rates, insurance, repairs and maintenance, property management fees, and depreciation. These deductions can help offset the taxable rental income and reduce your overall tax liability.
Capital Gains Tax (CGT): If you sell the property with the granny flat in the future, it may be subject to capital gains tax. However, the addition of the granny flat can potentially increase the property's cost base, which can reduce the capital gains tax liability. It's important to keep track of all costs associated with building the granny flat and seek advice from a tax professional to ensure you can maximize any available CGT benefits. We also recommend valuations of your property prior to construction and soon after to help with these calculations.
Main Residence Exemption: If the granny flat is built as an extension of your main residence and you continue to live in the main house, you may be eligible for the main residence exemption. This exemption means that any capital gains made on the sale of the entire property, including the granny flat, could be tax-free if certain conditions are met. However, if you rent out either the main house or the granny flat, the main residence exemption may be affected, and you may need to apportion the capital gains accordingly.
It's crucial to understand that tax laws can be complex, and the specific tax benefits available to you will depend on your individual circumstances, including your residency status, intention for the property, and the way you use and derive income from the granny flat. Consulting with a qualified tax professional or accountant is recommended to assess your situation and provide accurate advice tailored to your needs.