Last updated October 2026
A granny flat depreciation schedule is a report, usually prepared by a quantity surveyor, that sets out the building and equipment deductions you may be able to claim each year when your granny flat is rented out. It splits the cost of the build into the parts the ATO treats differently, so your tax agent can claim the right amount in the right year. This guide explains how it works, what the ATO rules say and when to order one.
This guide is general information only and is not tax, legal or financial advice. Speak with a registered tax agent and a licensed finance professional about your situation.
Key takeaways
- Depreciation generally applies when the granny flat is used to earn rent, not when it is used privately.
- The structure is claimed as capital works over a long period once construction is complete.
- Plant and equipment, such as appliances, is claimed over each item’s effective life.
- Items in a new build have not been used before, which matters under the ATO’s second-hand asset rules.
- A quantity surveyor prepares the schedule and your tax agent uses it in your return.
What is a granny flat depreciation schedule?
When you build a granny flat to rent, you cannot claim the whole build cost in the year you pay it. Instead, the ATO lets you claim it over time in two broad categories:
| Category | What it covers | How it is claimed |
|---|---|---|
| Capital works | The structure of the building, such as foundations, walls and roof | A set rate each year over a long period |
| Depreciating assets | Plant and equipment that is not part of the structure, such as appliances | Over each item’s effective life |
A granny flat depreciation schedule identifies which costs fall into each category and lists the amount you may be able to claim each year. It is not a legal requirement, but it gives your tax agent a clear, documented basis for each claim.
Capital works deductions for the structure
Capital works deductions cover the building itself. According to the ATO’s guide to working out your capital works deductions, the rate for residential construction that started on or after 16 September 1987 is 2.5%, which means deductions can be claimed over 40 years from when construction is completed.
A few general rules matter for a granny flat:
- You can start claiming once construction is complete, not while the build is underway.
- You cannot claim for any period the property is used for personal purposes. The ATO apportions the claim by the number of days it is used to earn income.
- If actual construction costs are unknown, the ATO says you can get an estimate from a quantity surveyor or other independent qualified person, and the fee for that estimate is deductible.
With a new G-Flat™, the build contract gives a clear starting figure, which a quantity surveyor can then allocate between the structure and the fittings.
Depreciating assets: plant and equipment
The ATO describes depreciating assets as items that can be described as plant and that do not form part of the rental premises. Its examples include floating timber flooring, carpets, curtains, appliances such as washing machines or fridges, and furniture.
The ATO’s page on depreciating assets in rental properties explains the main rules:
- Effective life: you can use the effective life set by the Commissioner or make your own reasonable estimate.
- When it starts: decline in value starts when you first use the asset or install it ready for use.
- Diminishing value method: a constant portion of the remaining value each year, giving higher deductions early on.
- Prime cost method: a uniform amount of the original value each year over the effective life.
- Lower cost items: assets costing $300 or less can generally be claimed in full straight away, and assets valued at less than $1,000 can be grouped in a low-value pool.
A granny flat depreciation schedule usually shows both methods so your tax agent can choose.
Second-hand asset rules and new builds
Since 1 July 2017, most individual owners cannot claim a deduction for the decline in value of second-hand depreciating assets in a residential rental property. Second-hand assets include items that were already in a property when you bought it, or items used in your own home before it was rented.
For a newly built granny flat, the appliances and fittings have not been used before, so they are generally treated as new assets. There is one catch to watch. If family lives in the granny flat first and you rent it out later, the ATO may treat assets used privately as second-hand. Ask your tax agent before changing how the granny flat is used.
When to order a granny flat depreciation schedule
Most owners order a granny flat depreciation schedule after handover, once the final costs are known and the granny flat is ready to rent. A good schedule will generally:
- separate capital works from depreciating assets
- list each depreciating asset with its effective life
- show yearly amounts under the diminishing value and prime cost methods
- account for the date the granny flat first became available for rent
Give your quantity surveyor the build contract, final invoices, the inclusions list and the plans. Our granny flat inclusions page and G-Flat™ layouts guide show what each finish level includes.
Depreciation when the granny flat shares your block
Most granny flats sit behind the owner’s home. The granny flat depreciation schedule should cover the granny flat itself, not your own home. Shared costs, such as service connections to the main house, may need to be apportioned, and your tax agent can advise how.
Renting part of your property can also affect the main residence exemption from capital gains tax, and capital works deductions can affect your cost base when you sell. Read what you need to know about tax deductions for granny flat investments and what happens to your granny flat if you sell your Melbourne home for more.
How depreciation fits with other rental deductions
Depreciation sits alongside the other rental costs you may be able to claim, such as loan interest, rates, insurance and agent fees. If your total deductions are higher than your rental income, the result is a rental loss. New law changes negative gearing from 1 July 2027, so read our guide to granny flat negative gearing in Victoria and discuss it with your tax agent.
For the full picture of tax and finance, see our granny flat investment property guide.
What a G-Flat™ costs
The standard G-Flat™ is a 60m², two bedroom turnkey build with a fixed price for each finish level.
| Finish level | Turnkey price |
|---|---|
| Affordable Lite | $195,000 |
| Affordable | $208,000 |
| Homestead | $218,000 |
| Signature | $238,000 |
| Luxe | $265,000 |
Prices are a guide for a standard 60m², two bedroom G-Flat™ and depend on your site. Sites 70km or more from the Melbourne CBD attract a 12.5% regional surcharge, sites with no driveway or tight backyard access attract a $7,000 surcharge, and sloping or elevated sites can affect the final price. A free site assessment confirms the price for your block.
Higher finish levels include more fittings and appliances, which changes how costs are split between capital works and depreciating assets. Your quantity surveyor works out that split. Compare finish levels in Luxe vs Signature and see granny flat pricing in Victoria.
Records to keep
Keep these documents together for your quantity surveyor and tax agent:
- the build contract, variations and final invoices
- the handover date and the date the granny flat was first available for rent
- the lease and rent records
- a log of any periods used privately or left vacant
- the granny flat depreciation schedule itself
Rent and returns
Rents vary by suburb, finish and demand, so we do not publish rental estimates. A local property manager can give you a rental appraisal, and our guide on how to legally rent out a granny flat in Victoria covers the tenancy rules.
Frequently asked questions
Do I need a granny flat depreciation schedule?
It is not required by law, but it gives your tax agent a documented basis for each claim.
When can I start claiming capital works?
Generally once construction is complete and the granny flat is used to earn income.
Can I claim depreciation if family lives in the granny flat?
Not for the periods it is used privately. Deductions are apportioned to the time it earns income.
Who prepares the schedule?
Usually a quantity surveyor. Your tax agent then uses it in your return.
Build with a clear contract price
A fixed, documented contract price makes a granny flat depreciation schedule simpler to prepare. A G-Flat™ takes approximately 5 months end to end. Book your free site assessment or visit our display G-Flat™.