Government announces it is cutting capital gains tax for granny flats

Government announces capital gains tax incentives in a bid to prevent elder abuse.

Architectural photography of a grey coastal style home facade with a granny flat bungalow off to the side

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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    COMMENTS

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    Robene
    6th Oct 2020
    11:56am
    I would just like some clarification on these arrangements. We didn't have a granny flat built on the property ourselves. We bought a property which had a 4 bedroom home and a detached garage which had been converted to a teenage retreat/granny flat which contains a separate ensuite and a small kitchen before we purchased it. I had sought legal advice and my will gives certain rights to my daughter with whom I bought the property and my son.
    I'm fairly sure that CGT wouldn't apply in my situation but I would appreciate some clarification.
    Virginia
    6th Oct 2020
    12:02pm
    Build a granny flat in Kempsey Shire Council. Imported kit from Europe, self assembled, painted, fenced etc. $16,000. Council fees, legals, bushfire reports, other costs $25,000.
    Be aware the unassumed costs multiply like coathangers.
    Jannie
    6th Oct 2020
    12:06pm
    The fees cost more than the granny flat, go figure. Money hungry councils.
    Farside
    6th Oct 2020
    4:22pm
    total fees more than the cost of kit - do you really think council fees were more than $16K?
    Pass the Ductape
    6th Oct 2020
    4:27pm
    Yes there's no doubt councils like to get their hands on your dosh - and they'll try every trick in the book to get it! Red tape and it's associated fees are a killer when it comes down to it, but if we think anyone in local government really cares - we'd be kidding ourselves.
    Virginia
    7th Oct 2020
    7:24am
    Good morning Farside, council fees were $ 15,750, building inspection $250, bushfire assessment $2000, legals $2900 plus, bushfire protection $1100 and incidentals to around $1500. Council contribution figures can be seen on council’s website.
    ( infrastructure $7750, water and sewerage $8000 )
    It pays to check before you start.
    mitch
    6th Oct 2020
    12:47pm
    Once again the govt is shafting pensioners with 2 payments of $250 which means that they are catch up payments to the cost of living concession that newstart jobseekers and single parents already will receive $715 compared to pensioners$215 plus $500 =$715. Pensioners will not get anything more than everyone else on centrelinc payments received for the cost of living expences and yet they got a %100 increase down to %50 increase while pensioners nothing
    The govt gave all the rich includu=ing politicians over $2000 dollars in tav cuts again on top of a %2 rise so once again the rich are being looked after again as usual.The govt should not only be ashamed of there actions as it seems wealthy first and everyone else can go fuck themselves
    McDaddy
    6th Oct 2020
    1:18pm
    Wrong forum mate.
    mitch
    6th Oct 2020
    6:18pm
    i do not place any articles in any particular place .where it ends up is where someone [places it.
    KSS
    7th Oct 2020
    6:38am
    Miech this next lot of 2 x $250 to pensioners brings their handouts to $2000 which is FAR FAR FAR more than they would have received with a 'usual' September increase. In addition, if the cost of living is reflected in the figure in March you will get the increase on top. The September increase was frozen because cost of living went down. Would you have prefered to lose money instead?
    On the Ball
    6th Oct 2020
    2:32pm
    I think the article got "lost in translation".
    The reporter needs to explain it properly.
    Currently, how does CGT apply to a Granny Flat? When its sold? (but its not on a seperate title so it cant be).
    Maybe the value of the whole property has gone up since the GF was built? CGT may be payable on the whole thing IF the GF has been commercially rented? Would the owners rent the GF to Granny? But when the property passes to the inheritors, CGT is not payable, until the whole property is sold. Long after the original intended flat occupiers have left the planet.
    Besides, Sukkar is involved. I need to see the facts.
    McDaddy
    6th Oct 2020
    4:16pm
    Ruling on CGT for Granny Flat rights https://www.ato.gov.au/law/view/document?DocID=TXR/TR200614/NAT/ATO/00001
    On the Ball
    6th Oct 2020
    2:34pm
    Re: "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."
    I hope this missprint is not an indication of the true effect of the change...
    It should be "exemption" not extension...
    SuziJ
    6th Oct 2020
    3:20pm
    This does absolutely nothing for those of us who don't own a property and have to rent - where's our Rent Assistance increase to 1 weeks rent per fortnight. We renters are going backwards at a great rate of knots!
    Mootnell
    6th Oct 2020
    10:46pm
    As a renter you have no other home on costs part from rent and personal power usage.
    Home owners are paying loans, repairs & maintenance, rates, water, power, emergency service levies, home insurance etc costs are double what a renter pays. And yes I’ve been on both ends of the spectrum and I’d take renting anytime.
    Tood
    7th Oct 2020
    12:45pm
    Mootnell you've missed the point its all about rent vs income. In govt housing rent is no more than 25% of income on the private market it can be 50% even 75%. Example I am transitioning and in the meantime renting, single pension $490, my rent $385 rent assistance $84 per week..........
    sunnyOz
    6th Oct 2020
    3:29pm
    Heading should have said - "Govt announces meagre boost for a very few older Aussies". What a crock!
    Golden Oldie
    6th Oct 2020
    5:33pm
    Also, expect it when you see it. Probably never.
    mitch
    7th Oct 2020
    1:52am
    there is no boost .there is only catch up on the cost of living concession
    newstart jobseekers and single parents received $715 while pensioners disabled and carers got $215 .therefore pensioners got nothing extra and have to wait two months to receive the first $250 and a further 3 months for the other $250 which also be an excuse for no increase in march.ITis amazing that the govt can give themselves a $3000 tax cut when they have practily bank rupted australia yet can make the rich richer
    Pardelope
    6th Oct 2020
    7:32pm
    Moving into a granny flat sounds great - nearby family for help, caring neighbours, privacy, less gardening etc. Great - if all continues as planned. However. throw in divorces, deaths, financial disasters and everything can quickly go apex over base. It is vital to be included on (or have a separate title) for the land. Case I heard about. Elderly grandparent paid for a granny flat to be built on property owned by son and daughter-in-law. The verbal agreement was that the grandparent would babysit grandchildren, look after pool and gardens, and care for property when others were travelling. Son travelled a lot overseas for his work leaving wife to work fulltime and bring up kids while spouse was away. Wife gets a new love life and demands divorce and home property. Husband leaves and starts a new life with his new partner. Grandparent is chucked out with no money and nowhere to live. Son and ex-daughter-in-law refuse to help in any way. Elder abuse?
    KSS
    7th Oct 2020
    6:45am
    There would be no 'verbal' agreements under this proposal. It would be a legally binding written agreement and it should be expected to cover future eventualities such as you describe. For example, in the event the property is sold (regardless of reason) arrangements must be made for the care of the granny-flat occupant assuming the occupant is not simply a commercial transaction.As in any legal agreement, do not sign it if you don't agree with the terms. In that case the property owner will not obtain the benefits to CGT under this porposal.
    mitch
    7th Oct 2020
    11:46am
    eo kss.You are r ight. It is more than pension increases but it is a fifth of what newstart jobseekers and single parents got.WHY DO PEOPLE ON THE DOLE and single parents get 5 times more increase than pensioners .most pensioners paid there way for 50 plus years of work and yet the unemployed have been rewarded for not getting a job These $250 payments are nothing more than a catch up to what everyone else received in the cost of living concession which pensioners never got.
    Tood
    7th Oct 2020
    12:35pm
    All good in some respects but in reality how many oldies end up in granny flats....not the vast majority I reckon


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