A gold mine in your own backyard
Increasing property & rental prices have forced many Australians to start looking for alternative living arrangements. This has caused a surge in demand for secondary dwellings or granny flats.
2009 saw the Affordable Rental Housing – State Environmental Planning Policy (SEPP) come into force in NSW. In August 2013, WA followed suit with its State Planning Policy 3.1 Residential Design Codes. With these legislative changes, NSW and WA join the NT, ACT and TAS in allowing property owners to rent a secondary dwelling to those other than family members or friends.
Research done by BMT Quantity Surveyors suggests that on average a granny flat will cost $121,000 to construct. Property owners have found that they are usually able to achieve annual rental yields of 15% on this investment.
In order to maximise the benefit of this yield, all granny flat owners should understand their depreciation entitlements – which your financial advisor can explain to you.
When a secondary dwelling is income-producing the owner is entitled to substantial deductions, even if they are currently occupying the primary residence on the property. Shared areas between the granny flat and owner-occupied property such as patios, pools and BBQ’s may also entitle the owner to additional depreciation deductions, claimed based on the tenant’s usage percentage.
To understand the viability of using a secondary dwelling as an additional source of income, the table below illustrates the differences in regulations between states as well as the first-year depreciation deductions a property investor would be able to claim.
| State requirements of secondary dwellings | ||||
| State | Minimum Land Size | Maximum Plot Size | Source of regulation | First Year Deductions* |
| NSW | 450m2 | 60m2 | Affordable Rental Housing – State Environmental Planning policy (SEPP) | $5,705 |
| WA | 450m2 | 70m2 | State Planning Policy 3.1 Residential Design Codes | $6,063 |
| NT | 500m2 | 50m2 | Northern Territory Planning Scheme – Amendment 207 | $5,271 |
| TAS | Variable | Variable | No statewide policy. Regulations vary based on local council policy | $5,667** |
| ACT | 500m2 | 90m2 | Territory Plan – Variation 306, Technical Amendment 2013-12 | $6,856 |
In QLD, VIC & SA granny flats cannot be used as income producing secondary dwellings.
*The first year deductions in this example are based on an average claim for a property of this size.
**Deductions are based on a 60m2 plot size.
