Granny Flats & Capital Gains Tax Exemptions

February 17, 2021

Many families with elderly relatives, be they aunts, uncles, grandparents or even aging parents, want to be able to invite these family members to live within a reasonable distance from their home, or within their own home, or on their own property. However, many elderlies who are in need of some minor daily assistance do not have the funds for an old age residence, nor do they want to live within the main home of their children or nieces or nephews. Instead, they prefer to maintain some semblance of independence. Until recently, this option was one that could be costly to families who might want to create an independent living space on their own property or connected to their property, for an elderly relative. 

Currently if a family home has an addition of a granny flat, there is a capital gains tax that is assessable against the property. The tax has created an impediment to families being willing to formalize a granny flat accommodation that they might want to make for elderly relatives. As a result, many families have skirted creating a legally enforceable agreement with a family member(s) who need a place to reside safely where they can count on relatives being available to assist them on a daily basis. This leaves the elderly vulnerable to abuses in the instance that the family relationship breaks down.

But, all of this is about to change. As of July 1, 2021 the capital gains tax that is assessed against the formal creation of a granny flat living arrangement, will no longer be. Families will now be able to make the necessary changes to their property and welcome their elderly family members into these semi-independent living quarters. The increase in value to the property will not be taxed. And, the elderly will be in a position to enter into a legally binding and enforceable living arrangement. This arrangement will provide them with both the safety and security they need to live comfortably with their families.

For the exemption to apply it is important that the following criteria be met;

  • The rules and regulations that are inherent in the main living house, must also be applicable to the granny flat
  • When residing at the same address all people involved in the main home and the granny flat are considered to be occupying a single dwelling. This will apply even if the persons involved occupy different units within the single dwelling.
  • The accommodation, known formally as the granny flat, must be occupied by an elderly person or a person with a disability

If these conditions are not met, the tax exemption can be found not to apply. Therefore, it is imperative that as you plan your granny flat accommodations, you remain cognizant of these requirements.

The upcoming expected change in the tax law will make assisting elderly parents, family members or the disabled much more possible. With the advent of the capital gains tax exemption, many families will now be able to formalize the arrangements they need to make to assure the safety and independence of those they love.

Owen Hodge Lawyers
Owen Hodge Lawyers is a top tier law firm Sydney residents rely on. We commenced providing legal services to the St George and Sutherland communities in 1951. Since then our Sydney Law Firm has grown considerably, developing a reputation for quality legal services, value for money and a strong commitment.
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