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Financial Planning
Granny flat tax exemption to become law

The government has commenced consultation on exposure draft legislation that will reduce the tax burden on granny flats in a move to prevent elder financial abuse.

The legislation follows the budget announcement that the government would provide a targeted capital gains tax (CGT) exemption for formal granny flat arrangements.

Assistant treasurer Michael Sukkar under the measure 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.

Prior to the exemption, families faced a significant CGT liability in creating a formal or legally enforceable granny flat arrangement. This may have led them to opt for informal arrangements, which can leave families open to financial risk and exploitation.

The tax implications of granny flats were first flagged by the government in 2018 when it requested the Board of Taxation conduct a review and outline potential reforms to assist the prevention of elder abuse.

The Board of Taxation commenced the review in 2019 and consulted with stakeholders including Department of Social Services, Department of Human Services and the Attorney-General's Department.

Formal and legally enforceable family agreements were identified as a measure to prevent elder abuse in the 2017 Australian Law Reform Commission's report Elder Abuse - A National Legal Response.

The report found that current tax arrangements have been a deterrent, in some cases, to families establishing a formal and legally enforceable agreement and that failure to establish such an agreement leaves the elderly person without rights to their home.

Stakeholders and interested parties can submit responses to the consultation until 29 April 2021.

Read more: Granny flatCGTBoard of TaxationDepartment of Social ServicesAustralian Law Reform CommissionDepartment of Human ServicesMichael Sukkar