» Granny flat

Discover the tax benefits available to granny flats owners

BMT team — Mon, 26 Sep 2022 02:18:41 +0000

For many years granny flats have been an increasingly popular way to invest in property. Granny flats can boost a property’s value substantially and increase rental yields. Granny flats (also known as secondary dwellings) are self-contained units that have a kitchen or kitchenette, bathroom, bedrooms, a laundry and living area. They’re popular for older family who require ongoing support, as Airbnb’s (more so if the location is in a tourist area), and for people simply wanting to boost their cash flow. Some people are even moving into their granny flat and renting out their main home to maximise earning potential. In this article we explore the benefits of granny flats, each state’s regulations and how depreciation deductions can maximise an investment return. Tax benefits of a granny flat State regulations Maximise investment return with depreciation Tax benefits of a granny flat There are many benefits to granny flats including earning a rental income, quick returns, access to tax benefits, growth in property value, and space for family growth. The cost of constructing a granny flat is cheaper and can yield quicker returns than alternative residential investment properties such as a house or an apartment. The price of constructing a granny flat can be anywhere from $80 000 up to $300 000 plus and construction is usually scheduled between twelve to fourteen weeks from start to final handover. Prices depend on size, fixtures and fittings, the land it’s built on (for example if the land is on a slope construction may cost more) and existing services (if the granny flat is further away from your power and sewerage system it may cost more to connect them). This doesn’t include council or application fees. Some councils require fees and contributions be paid before building which go toward the additional services and infrastructure required as a result of a development. Because a granny flat is income producing there are a variety of tax benefits available including depreciation] and claiming costs such as rates, insurance, interest rates, repairs and maintenance. A typical granny flat can produce a rental income of anywhere from $250 -$500 a week depending on location, size and level of finish. Renting out a granny flat doesn’t only improve cash flow but allows owners to pay off their mortgage quicker. It’s important to note that while there are many benefits to granny flats it doesn’t guarantee the house will grow in value and can potentially reduce the buyer pool when selling as some people don’t want a granny flat on the property. There are also possible capital gain tax implications to consider. State regulations Each state has varying rules to how granny flats can be used, including if they are permitted to produce an income, who can occupy them and where they can be constructed on the property. In New South Wales granny flats can be built without council approval and can be occupied by anyone. The property can’t be smaller than 450 square metres, must maintain a three-metre setback from the rear of the property, a 0.9-metre setback from the side boundaries and can’t exceed a maximum internal space of sixty square metres. They can’t exceed the maximum building height of 8.3 metres, must maintain a three-metre distance from any existing tress over four metres tall, can’t be built over an easement and the property must have residential zoning. In the Australian Capital Territory (ACT) granny flats can be built and occupied by anyone with council approval. The property must be at least 500 square metres, the granny flat can’t be smaller than forty square metres and no larger than ninety square metres, in a residential zone, compliant with the total plot ration for the block and compliant with the Australian Standard AS 4299 Adaptable Housing Class (Class C). They must be a water sensitive urban design, compatible with exterior building materials of existing buildings in the neighborhood and compliant with setbacks. Granny flats in the ACT must have one parking space which cannot be in the ‘front zone’, clear unobstructed pedestrian access, reasonable levels of privacy and private open space for tenants. Under emergency planning changes to help alleviate the housing crisis granny flats in Queensland can now be occupied by anyone. Previously in order to rent out a granny flat to any non immediate family member council approval was required. Without council approval granny flats can’t be larger than eighty square metres and built no further than twenty metres from the main house. Two storey granny flats can’t be taller than 9.5 metres, the rear and side walls must not exceed 7.5 metres, the highest point of the roof cannot be greater than thirty degrees on small lots and can only be built in low or medium density zones. Three storey granny flats can’t be taller than 11.5 metres, the rear and side walls must not exceed 9.5 metres and the maximum point on the top of the roof cannot be greater than thirty degrees. Granny flats must have one parking space (additional to those for the main house) and a separate entrance. In Western Australia only one granny flat can be built on each lot, the lot size needs to be a minimum of 450 square metres (unless your local council states otherwise) and a maximum floor area of seventy square metres (some councils may state up to 100 square metres). Approval from the local council is required if the granny flat will be occupied by a person outside of the household. Once a granny flat is built the land cannot be subdivided (unless your local council states otherwise). The regulations on granny flats in Tasmania is complex as it varies between councils. Developing land for residential purposes requires approval from your local council and granny flats must have a maximum floor size of 60 square metres or no more than thirty per cent of the total area of the main home. All building and plumbing works must comply with the standards of the National Construction Code […]

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Dual income property – one property, two rents

BMT team — Thu, 27 Jun 2019 00:18:50 +0000

Dual income properties have become a popular investment strategy in recent years. Increased property prices have forced many out of the market, causing a surge in demand for alternative living arrangements. Dual income properties provide an innovative solution for investors to meet such market demands. A property is classified as dual income when the owner generates two incomes by way of separate rental agreements. In this article we will explore: Dual income property types Advantages and disadvantages of dual income properties Dual income property case study – granny flat Seek an expert and save more Dual income property types Common dual income scenarios include granny flats, duplex units and dual occupancy properties. A granny flat is a secondary dwelling generally situated in the backyard of an existing property. Often studio sized, they are relatively affordable while still offering strong rental returns. When a secondary dwelling such as a granny flat is income-producing the owner is entitled to substantial depreciation deductions, even if they are currently occupying the primary residence on the property. Common areas between the granny flat and the owner-occupied property such as driveways, pools and barbecues may also entitle the owner to additional depreciation deductions. Read our article to find out more about the advantages of building a granny flat. Unlike a granny flat, a duplex refers to two residential properties that share a common wall. If duplexes are built on the same land title, they can be owned and sold as a pair. If they exist on separate land titles, investors can own and sell each duplex individually. Dual-occupancy properties are like duplexes in that they consist of two dwellings on the one plot of land, but they don’t necessarily have to be adjoining. Dual-occupancy properties, also known as shared living, have single title ownership. This means there’s only one set of rates and no body corporate fees to consider. Whether it be a granny flat, duplex or dual occupancy property, a dual income investment can offer flexibility and opportunity to suit a range of investor needs. In addition, dual income property owners are entitled to substantial depreciation deductions. Advantages and disadvantages of dual income properties One of the main benefits of a dual income investment is the flexibility it offers. An investor may choose to lease both properties, live in one while renting out the other or even sell one or both properties. All options are highly profitable and can help maximise an investor’s cash flow. Another advantage is that investors don’t have to subdivide land to maximise its value. Unlike subdivided land, duplexes and granny flats don’t have additional holding fees, insurance costs and council rates. While there are many benefits, dual income properties also have downfalls. The first is navigating council legislation and getting approval. Not all councils allow the building of dual income properties so it’s important to understand these rules and regulations. If you do get council approval, the initial cost of building a dual income property may also fare higher because you’re essentially building two homes. For example, the cost of building a set of duplexes will be higher than constructing a single unit. However, given that dual income investments have the ability to generate two revenue streams, they typically make up for this outlay. Dual income property case study – granny flat An investor decides to build a granny flat on their block of land. The granny flat features a split system air conditioner, rangehood, hot water system, curtains, ceiling fans and a solar powered generating system, all of which have considerable depreciable value. The table below details the first full year and the cumulative five year depreciation deductions available to the property owner. It’s important to note that these items are just some of the assets that can be depreciated. The owner would also be eligible to claim capital works deductions for the building structure. As the table shows, the investor can claim $6,549 in depreciation deductions in the first financial year and a further $27,529 in the first five years on these plant and equipment assets. If the granny flat is situated on a block featuring another investment property, the investor can expect to claim thousands of dollars more. For example, in the 2017/2018 financial year BMT Tax Depreciation found residential property investors an average of almost $9,000 in the first financial year. If we apply this to our case study, the investor’s total claim could be more than $15,000. These deductions will help boost the investor’s cash flow and reduce their taxable income. Seek an expert and save more If you own or are considering building a dual income property, you can increase your tax return by organising a tax depreciation schedule with a specialist Quantity Surveyor. Tax Ruling 97/25 states quantity surveyors such as BMT are one of the only professions qualified to estimate construction costs for depreciation. A BMT Tax Depreciation Schedule helps to ensure you maximise the cash return from your investment property each financial year. The schedule fee is a one-off payment and will include deductions for the forty year lifetime of a property. The fee is 100 per cent tax deductible. To find out more about how depreciation can help you save when owning a dual income property, Request a Quote or speak to our expert team on 1300 728 726 today.

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Why granny flats are no longer just for grannies

BMT team — Wed, 06 Jul 2016 08:49:17 +0000

The idea of a granny flat as a bland single room dwelling has changed. They used to be a way to keep grandma close by, with a single burner stove, a toaster and a single bed. But these assumptions are being challenged by the New South Wales granny flat industry boom. The rules have changed… Since the legislation change in 2009, building a granny flat has become a far easier process and approval can be granted within ten days. Additionally, the rules around how they can be used have been altered and now enable property owners to make money by renting out their secondary dwelling. This change has fueled demand for granny flats, with builders creating accommodation that ranges from modest studios to multi-bedroom mini-homes. Homeowners across the state, and in Sydney particularly, can then take advantage of the demand for comfortable, affordable rentals in close proximity to the CBD. Alongside New South Wales, homeowners in Tasmania, Western Australia and the Northern Territory are able to generate income with a secondary dwelling. This opportunity has given architects and designers new challenges as they attempt to create small homes that maximise the available space, remain comfortable and functional and stay within a budget much smaller than that of a standard sized house. This has seen a 240 per cent increase in the number being built and these numbers are similar in Western Australia. … but not for everyone The laws differ from the state to state and in Victoria and South Australia, a granny flat must be actually used to house a family member. The tighter laws around secondary dwellings mean that it isn’t possible use one to legally generate additional income. These laws dictate that a granny flat or dependent person’s unit can only be occupied by a dependent of the resident of the main dwelling – generally a family member. Once the person leaves, the structure has to be removed. To build a permanent dwelling requires planning permission and subdividing the land, which is a costly process. Queensland property owners should check with their local council to discuss regulations on whether they are able to rent a granny flat for income-producing purposes. Add versatility and space to your existing home Building a granny flat isn’t just about making money though. A granny flat can have a wide range of uses, both allowing homeowners to keep friends or family close to home, or for creative endeavours and activities. The extra indoor space and self-contained freedom a secondary dwelling provides can be used for anything from a place for the kids or grandparents to stay when they visit, or a place to practice yoga, paint, retreat from the world, and more. The humble granny flat has seen a resurgence in the last five years and continues to add value in a competitive property market. Regardless of the purpose, if you own a home with enough space, then adding a secondary dwelling could be the edge you need when selling or letting your property. It is important to seek expert advice regarding the laws in your state and what is and isn’t permissible.

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