Homeowners will find it easier to accommodate elderly or disabled family members and friends from 1 July 2021, including in granny flats, after the Australian Parliament today approved new legislation.
The Australian Senate approved the legislation which removes the potential for capital gains tax applying to family homes where written granny flat arrangements are in place.
A granny flat arrangement is where a person obtains a life interest or a right to accommodation for life in a private residence that is to be their principal home, in return for some sort of “valuable consideration”.
Typically, this has involved an older family member transferring title to their home, or proceeds from the sale of their home or other assets, to another family member or friends in exchange for the trusted person promising to provide ongoing care, support and housing.
Until now, the creation of such an arrangement has had the potential to trigger a capital gains tax event on the family home, such as when it is sold. This legislation reverses this situation.
The legislation’s passing is expected to increase interest in granny flats as a housing option for older Australians, and also work to bring families closer together.
For instance, it will mean that Australians will find it easier to look after loved ones and friends, either in a standalone or attached granny flat, or simply within the family home itself.
This is a particularly important step at the present time, when many families are keen to keep frail parents or adult children close to them because of the COVID-19 pandemic.
Separately, the reform may also reduce the potential for elder abuse, where adult children take money or assets from their parents and then refuse to honour verbal promises to care or accommodate them.
This is because the new law makes it more attractive for families to enter into formal granny flat arrangements, which more clearly define the occupation rights of the elderly family member.
Until now, the potential presence of capital gains tax has been a disincentive to the creation of these written arrangements, and therefore left elderly parents or friends being more likely to be duped through verbal agreements.
According to the legislation’s explanatory memorandum, it has the potential to apply to both existing and new agreements.
The law will apply when the person having the granny flat interest has reached pension age or has a disability and if the arrangement is not of a commercial nature.
The legislation’s commencement date is 1 July.
However, any person considering entering into a granny flat arrangement would be strongly advised to seek financial and legal advice, including to consider any social security payment implications of the move.
Find out more:
- Family and friends will be able to stay in tax free granny flats, under new law
- Granny flat building boom expected due to tax cut pledge
- Official legislation page
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