Financial Planning
Tax treatment of granny flats under review

The Federal Government has requested the Board of Taxation conduct a review of the tax treatment of granny flat arrangements and outline potential reforms to assist the prevention of elder abuse.

Under existing tax laws, a homeowner may have to pay capital gains tax where there is a formal and legally enforceable agreement for an older family member to reside in their home, either in the same dwelling or a separately constructed dwelling on the property.

From a social security perspective, granny flat arrangements can attract gifting concessions in certain situations, meaning that part or all of the value an asset or amount transferred to a child may be excluded from their income and assets when calculating their age pension.

This is usually a favourable outcome for pensioners as it prevents their age pension entitlement being reduced, while also facilitating early wealth transfer to beneficiaries.

However, these arrangements are usually informal, as the imposition of CGT can act as a deterrent to establishing a formal agreement, leaving the older family member vulnerable in the event of a breakdown in the agreement.

The review will consider and make recommendations on the appropriate tax treatment of such arrangements, taking into account current tax laws and treatment of granny flat interests under social security rules.

It is the Government's intention that the review will raise awareness of these issues and incentivise families to ensure formal agreements are put in place.

The review is expected to commence in early 2019 with the delivery of a final report slated for the second half of the year.

"The Government is committed to protecting the rights of older Australians. We have committed an additional $22 million over the next four years to increase front-line services to support those seeking help with elder abuse and we are working with State and Territory Attorneys-General to develop a national plan to respond to the abuse of older Australians," Assistant Treasurer Stuart Robert said.

Read more: Board of TaxationStuart Robert
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