Date posted: 6/10/2020 2 min read

CGT exemption for granny flats

CGT will not apply to the creation, variation or termination of a formal written granny flat arrangement that accommodates older Australians or people with disabilities.

What happens when aging takes a toll on physical and mental health? Can the elderly person be at risk of financial exploitation?

There are issues bigger than tax at stake, but the Australian Government is addressing the capital gains tax (CGT) impediments for granny flat arrangements.

‘Granny flat’ refers to accommodation in a family (usually a child’s) home and can involve payment of money or assets for the right to live there. Assets such as the parent’s home, may be sold to pay for the right.

CGT risk has been a factor in encouraging informal granny flat arrangements, but without a formal agreement the rights of both parties may be unclear. The announcement makes a formal agreement key to obtaining CGT exemption.

CGT event D1 can apply upon the granting of rights. So, the Board of Taxation conducted a review to determine how an exemption should apply.

The Board of Taxation's key recommendation is that, for the purposes of the CGT main residence exemption:

  • parties to a qualifying granny flat arrangement, residing at the same address, should be taken to occupy a single dwelling, even where they occupy different units of accommodation.
  • The ordinary main residence rules should apply to granny flat arrangements that do not involve co-living.

An exemption will apply ‘as early as’ 1 July 2021, subject to the enactment of legislation. But clarity is still needed on the eligibility conditions.

Treasurer's announcement

Read the Treasurer's joint media release with Michael Sukkar MP, Minister for Housing and Assistant Treasurer

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Board of Taxation Review and Report

Access the complete report of the Board of Taxation's Review of Granny Flat Arrangements

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