If I rent out my granny flat do I have to pay Capital Gains Tax

Posted on March 1, 2020

Will I have to pay tax on the income you earn for your granny flat?

The beauty of leasing out your granny flat is that the additional income will help pay off your home loan quicker, but there may be the potential of having to pay future tax on the financial overall gain of the property known as the Capital Gains Tax (CGT) once you add a granny flat to your garden. 

What is Capital Gains Tax?

The Australian Taxation Office define a capital gain (or loss) as the difference in value between the time of investment and the time of sale of a property. Capital Gains Tax (as per the name) is the tax you pay on the capital gain. Personal assets such as the family home are usually exempt from this tax however, adding a granny flat maybe deemed an investment as it is gaining an income. So, it is wise to have an idea of the value of your property, now with the new addition of your freshly built granny flat. This will be required when you sell your home to estimate your Capital Gain.

What are the tax implications of my granny flat rental?

Although your main home residence is exempt from Capital Gains Tax (CGT), if in the future you sell your house & you have been getting what is considered a commercial rental income from a tenant in your granny flat investment property, such as a formal weekly rental payment, you will most likely have to pay tax on a portion of the gain (the granny flat percentage to total area of your property) since the granny flat started to be leased.

So, If you plan on renting your granny flat out for an income, you should keep a record of all tax deductible costs relating to the management of your granny flat. Expenses such as the build and landscape borrowings, upkeep maintenance, and running costs.

If however, you are leasing to a family member, such as a child whom you are helping out, by allowing them to live on your premise, or assisting your elderly parents, if an informal arrangement - with no formal written agreement in place, you will most likely not have to pay CGT.

Prior leasing out it is advisable to speak to an accountant or your financial advisor to see if the yearly income will be worth the while and outweigh the potential CGT charge in the future when you sell your property if you are just wanting to gain income from your granny flat.  If you don't have a financial advisor we are more than happy to point you in the right direction just contact us here.

The investment of a granny flat build on your main residential home will however be a great asset and most likely bring overall value to your property as other home owners like the idea of the additional space for their household or extended family. You may like to read our article "why granny flats are a good property investment".

Let us know how you go please! Don't forget to list on www.grannyflatrental.com.au to find a tenant or come to us for a referral to one of our recommended real estate agents in your area, to help you.

Please contact us if we can help further or visit us on facebook @grannyflatrental or instagram

Posted by Lisa Founder GFR

Disclaimer: Any information is of general help & not deemed as legal or financial advice.

GrannyFlat Rental is not held responsible for any compensation from this general help.