How apportion Main residence & Granny Flat in 2-storey house?

[GlennG]

Hello, hope you are able to help me do the right thing

We will have a two storey house built soon. It will include a 'Granny Flat' which will be rented out. Because we are in a flood prone region we will have the Granny Flat built on a 'Workshop' or Garage below that will be for our use only.
We need to correctly apportion for tax deductibility purposes and for Capital Gains when the house is sold.


Apportion by Area:
From approved plans, the areas in square metres are-
Main Ground Floor 79, First Floor 119, Terrace and Porches 90, Garages/workshop 90
Granny Flat 51, porches 9


Possible Method A: Just use total areas of Granny Flat available for rent compared to total floor area (Ground + First Floor)
Total area: 60/(79 + 119 + 90 + 90 + 60) = 60/438 = 13.7%

B
Ignore the lower cost parts of building - garage, workshop, terrace, porch (much cheaper to build parts)
51/(79+119) = 51/198 = 25.76%

C
Get the builder to quote separately for the two parts

Should the land value under the Granny Flat also be taken into account in some way?

If e.g using method C the cost of the Granny Flat build is 20% of the total, would we use 20% in the calculation of CGT someday down the track?

Or should we be doing something else altogether!
How would you proceed?
Many thanks to any responders

 

[Paul@PFI]

Due to its cost it will not be a separate CGT asset. Special rules determine if a asset can be separated. The ATO publish this cost annually (indexed). 2014 = $138K

https://www.ato.gov.au/General/Capi...Real-estate/Separate-assets-for-CGT-purposes/

Its a bit like creating a separate CGT asset for a clothes line or fence/ pathway. It doesn't happen. The cost adds to the cost base for the primary asset.

Its cost can be determined by its cost of construction. A QS may assist ???
You will find that GF's offer very limited deductions. ie no land, low cost construct etc. But they don't appreciate either. They enhance yield.

 

[GlennG]

Due to its cost it will not be a separate CGT asset. Special rules determine if a asset can be separated. The ATO publish this cost annually (indexed). 2014 = $138K

https://www.ato.gov.au/General/Capi...Real-estate/Separate-assets-for-CGT-purposes/

Its a bit like creating a separate CGT asset for a clothes line or fence/ pathway. It doesn't happen. The cost adds to the cost base for the primary asset.

Its cost can be determined by its cost of construction. A QS may assist ???
You will find that GF's offer very limited deductions. ie no land, low cost construct etc. But they don't appreciate either. They enhance yield.

Thanks Paul. Once the house is built we'll live in the main part and rent out just the granny flat part. So I'm presuming that sometime down the track we or somebody else will have to pay CGT on the part that was rented out.
Maybe the simplest thing is to go by the % of total floor space for both tax deductions and for eventual CGT if the ATO would think that's ok

 

[Paul@PFI]

Thanks Paul. Once the house is built we'll live in the main part and rent out just the granny flat part. So I'm presuming that sometime down the track we or somebody else will have to pay CGT on the part that was rented out.
Maybe the simplest thing is to go by the % of total floor space for both tax deductions and for eventual CGT if the ATO would think that's ok

You may be overstating if you do. A better way may be a % of cost. The GF has no land. But this may limit deductions too. You may be surprised how small a GF will comprise in area v's a family home. ie 50m2 /400 = 12.5%. So council rate deduction each year may come to little ie $150.

ie : Your option C. The whole of the site cost (house and land) inclusive of duties, legals etc PLUS the GF construct cost = Total cost.

GF cost divided by total cost = GF share. Builder probably could show it as a separate cost within the total project cost.Its better to have tried to demonstrate a reasonable basis then not try.

 

[GlennG]

Thanks again Paul
I've been reading up on tax issues the last few days and have come to the conclusion that it's not my favourite subject.

I'm thinking now of using the Granny Flat in other ways - maybe for a house sitter during periods when we are away - free accommodation in return for looking after the house, maintaining gardens, walking feeding and playing with dog.

Or even a longer term setup e.g for a young couple trying to save up for a deposit for a house - rent-free in return for help with household chores.

Or even a live-in nurse if one of us needed being pushed around in a wheelchair at some stage - that sort of thing.

If no money ever changes hands then there will be no income declared, no deductions, no CGT to worry about

Is this all correct and the ATO will have no problem with this?