Government announces it is cutting capital gains tax for granny flats

Increasing concern over the treatment of older Australians who enter into granny flat arrangements with children has led the government to offer incentives to formalising these deals.

On Monday, assistant treasurer and minister for housing Michael Sukkar announced that the government would provide a targeted capital gains tax (CGT) exemption for granny flat arrangements where there is a formal written agreement in place.

Granny flat arrangements, where the often elderly parent contributes or gifts a property to children in return for accommodation rights either in the property or in a new building on the existing land, are often informal.

Most of these arrangements work out well, with the older person having the support of family nearby as they age, but there are times when these arrangements turn sour, and the parent can be asked to leave the property with nothing in return.

The current legislation means that CGT may apply where a family member resides in their granny flat if they have a formal and legally enforceable agreement.

Mr Sukkar explained that these tax consequences are often a key impediment to families creating formal and legally enforceable granny flat arrangements, leaving no protection for the rights of the elderly parent if things go awry.

Under the new measure, which the government hopes will become law by 1 July 2021, CGT will not apply to the creation, variation or termination of a formal written granny flat arrangement providing accommodation for older Australians or people with disabilities.

The change will only apply to agreements that are entered into because of family relationships or other personal ties, and will not apply to commercial rental arrangements.

According to the government, there are currently around 3.9 million pensioners and around four million Australians with a disability who would be eligible for the proposed CGT extension.

“This will boost the construction industry, stimulate demand for new housing and support tradies’ jobs at a time when the economy needs it most,” Mr Sukkar said.

Last year, analysis by CoreLogic found that more than half a million homeowners across Australia’s eastern seaboard have enough space on their property to build a granny flat, which could boost home values by 30 per cent.

Do you have a granny flat arrangement with your parents or children? Is the agreement legally enforceable or is it informal? Have you contemplated what would happen if the arrangement went wrong? Did you seek legal advice before entering the arrangement?

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Written by Ben

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