If we build a granny flat out the back of our home (primary residence) could we claim the rent on our tax or would we have to apply for a sub division and have the flat on a separate title?

Hi Eddy,

yes you can (and should) declare the rent as income and claim the outgoings as deductions. Remember that you will have to apportion the outgoings on a reasonable basis, otherwise the ATO will get snakey with you for having a lend of them.

For example, a portion of the rates will be deductible, because a portion of the property will be used for a "creditable purpose"......to generate assessable income.....but is NOT 100% of the rates clearly because you live in part of the property.

same goes for interest on the mortgage and other things that are based on jointlt spent or used items.

Repairs specific to the granny flat will be 100% deductible.

You may consider getting separate meters for gas and electricity: it will make life easier to allocate who pays what and also make life easier at tax time too.

Now for the bad news: if you use a portion of your home to generate assessable income, then the ATO will want to take a slice of the action when you sell the home later on and make a capital gain:

for most people the home is exempt from Capital Gains Tax.

however if you use some of your home to generate income (rent) then a portion of the home becomes subject to CGT.....which is never a great feeling, but thats just how it is.....

Best thing you can do is sit down with a qualified accountant and go through it with them....find out all the things you CAN do and all the things you CANT do.....then you will be able to assess for yourself whether a granny flat is a good idea or not.

good luck
BC

Dear Eddie

Granny Flats are basically another house,on your existing single title which has your home, so you do not need to apply for a sub division and have the flat on a separate title?
Regarding the income from granny flat,it will be added to your current income for example add $350 per week income, but then you can deduct Depreciation if you have a quantity surveyor's report, Interest on loan used to build the Granny Flat, and other deductions like agents fees, and rates. You should treat it as if it were an investment property. Feel free to chat.