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Granny flat - deductible?

Discussion in 'Accounting & Tax' started by swanqueen, 27th Jun, 2015.

  1. swanqueen

    swanqueen Well-Known Member

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    Hello,

    I am looking to borrow to build a granny flat. Are the following components deductible?

    1. Design and approval fees (including draftperson, PC or DA council certifier fees)
    2. S94 council contributions
    3. Building (including connection to services)
    4. Landscaping post construction
     
  2. Depreciator

    Depreciator Moderator Staff Member

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    Everything related to the structure - including professional fees - gets included.

    Soft landscaping doesn't.
     
  3. devank

    devank Look, lets just get on with this, ok? Premium Member

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    How about artificial turf?
     
  4. swanqueen

    swanqueen Well-Known Member

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    Pardon my ignorance - but what does soft landscaping mean?
     
  5. Biz

    Biz Well-Known Member

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    Hi Scott, do you mean it gets included in the depreciation? I was told it wasnt. This is for tge approval costs.
     
  6. Depreciator

    Depreciator Moderator Staff Member

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    Soft landscaping is turf, plants etc. hard landscaping is paths, retaining walls, pergolas etc.
     
  7. Biz

    Biz Well-Known Member

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    Op was asking about the approvals cost though. Those are not?
     
  8. Depreciator

    Depreciator Moderator Staff Member

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    The things that are generally not included are legal and professional costs that relate more to the land as opposed to the building e.g. land purchase costs, land surveyor, subdivision costs. Most accountants would add them to the cost base.
     
  9. Biz

    Biz Well-Known Member

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    Might have to call your office and add those on then mate, pretty sure they left them off on the last schedule i did with you guys. Or could you take a peek at it for me?
     
  10. htopg

    htopg Well-Known Member

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    If it is for your own granny, none of them are depreciatible nor deductible.
    If it is for other grannies/people and you are getting rents:
    1. all of them are depreciatible at 2.5% per year.
    2. none of them are deductible.
    3. the interests will be deductible
    4. the borrow cost can be deducted over 5 years
     
  11. swanqueen

    swanqueen Well-Known Member

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    Thanks all!
     
  12. larrylarry

    larrylarry Well-Known Member

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    I just built a GF in the backyard and a couple is keen to rent from me (I didn't advertise). Do I need to get a specific depreciation schedule from my GF builder? It is fully furnished (beds, TV, sofa, coffee table etc). The dominant purpose is to allow my in laws to stay who visit infrequently from overseas. I used an investment loan to build this GF just in case I need to rent for income. At this stage, I'm not sure if I should rent it out and attract CGT but of course, we don't intend to sell. Enlightenment is needed.
     
  13. Beelzebub

    Beelzebub Well-Known Member

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    My understanding is they are capital expenses and can be deducted upon sale against any CGT paid.
     
  14. larrylarry

    larrylarry Well-Known Member

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    That's what I was told but CGT may be a lot more than deductions. Dilemma. But the rent is good.
     
  15. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    The deductions available to someone with a GF in the backyard of their PPOR will be minimal. As will the CGT on the final sale since its little more than a depreciable structure.
     
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  16. devank

    devank Look, lets just get on with this, ok? Premium Member

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    Lets say you bought a PPOR in 2006 for 500K, built a Granny Flat (to rent) in 2010 for 100K and finally sold it in 2015 for 1Mil.
    Lets say the Granny flat takes up about 25% of the lot. Lets say the value of the property in 2010 was 750K.

    How is the capital gain tax calculated in this example?
     
  17. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Apportionment may be complex in such cases and each taxpayers case may be different depending upon facts and the use of the GF and the cost of the GF.

    TD 1999/66 provides limited guidance (it doesn't relate to granny flats) that considers pro-rata apportioning based upon area may provide a reasonable basis. However this TD relates to where a portion of the home is used to produce income (office, workshop etc). Not where a portion of the land has a newly built income producing (depreciable and Div 43) fixture upon it.
    http://law.ato.gov.au/atolaw/view.htm?docid=TXD/TD199966/NAT/ATO/00001

    One key issue is that of the separate CGT asset rule : https://www.ato.gov.au/General/Capi...Real-estate/Separate-assets-for-CGT-purposes/
    How does one then reasonably determine the CGT proceeds from the disposal that may give rise to a balancing adjustment ?

    I have been contemplating for a while about seeking a TD in respect of the tax consequences of a GF in the backyard of a main residence. There may need to be two TDs. One where home is a pre-CGT acquisition and other a post-CGT acquisition. There is a need for clarity on this issue.
     
  18. MikeLivingTheDream

    MikeLivingTheDream BCOM MCOM MTAX CPA CTA Registered Tax Agent

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    I'm surprised someone hasn't taken up issue with the title 'granny' flat. Surely the Civil Libertarian Movement should have something to say about this discrimination towards old ladies.
     
  19. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    I can see the day coming...
     
  20. Jacque

    Jacque Buyers Agent and Bookworm, Sydney Business Member

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    Hi @Paul@PFI

    I've been doing some trawling to try to find out more info on the whole CGT issue around building GFs on PPOR sites and came across your response here. Did you end up seeking a TD on this subject yet?