Building 1 bedroom unit in backyard of primary residence. Tax/acc advice!

Hi all.
My partner and I own/ live in a house on 500m2 in inner Melbourne.
There is wide lane access at the rear of the property. There is a main Rd 40m down the lane.
We were planning on building a garage off the lane the expanded our plans to a 20m2 garage for our use and a 55m2 1 bed unit for rental.
100k to build in total. 80k for the unit.
The land the unit would be built on, 1/10 rates val would be 90k.

Just looking for some tax/acc advice.
I can work the numbers out if I just bought a place in a block of units, but building one on my own land???

Is the value of the land the unit is built on important??
Any numbers anyone can crunch/ important info we should assess/ anything would be much appreciated.

P.S.
We will borrow the 100k
Pre tax income for the 2 of 160k

Thanks for your input.
Cchhug

 

What tax question are you actually asking here?

 

Hi trainee and thanks for your reply.

I'm not an accountant so I find it hard know what questions to ask.

Will the value of the land it is built on be important? Rates/ water costs for primary residence, would it be 9/10 and unit 1/10?
We would receive approx 250 per week rental return per week. Paying interest of 4%. Will we be in for tax bill?

Not sure what else to ask. Just after general tax info when building investmwnt property on land belonging to your primary residence. A similar unit would in our area would be 300k+ but ours will only cost 80k

 

There are lots of issues. Income tax (rent, interest, etc). Rent is taxable. Interest might be deductible, depends on where the borrowings come from. With rent of 250pw and build cost of 80k, most likely positive income.

Capital gains tax will be a major issue because you lose part of your CGT exemption. Land value not so important, possibly land tax?

You need to talk to an accountant in detail.

 

Thanks trainee.

I hadn't considered half of what you raised.

 

You planning on building and then holding and renting ?

Or subdividing the back portion and selling ?

Also factor in potential depreciation benefits as it is a new build so depreciation changes wont impact on this build.

Make sure you structure the loan correctly as well. You dont want to lose any potential interest deductions or have them apportioned if you can avoid it.

 

Deductibility of interest
Land tax
Income tax
Cgt on sale
Gst
And strategies around the above.

 

Thanks mike and terry.

We would be planning to build and hold.

Sounds like more tax implications than I thought.

Just trying to get a handle on whether it would be worth it

 

It is generally worth making money even if you must pay tax. You just have to try to minimise it.

 

Sometimes when you factor into account going into a higher marginal tax rate and loss of government benefits you can sometimes be worse off.

If they were on any form of age pension might even have to say goodbye to it.

Thanks to the australian socialist welfare regime.