Changes that operate for the 2021-22 and later income years in relation to the tax consequences of granny flat arrangements may be relevant to succession planning. Those changes effectively ensure that there are no CGT consequences associated with the creation, variation or termination of a granny flat arrangement that satisfies the requirements of the provisions.
A granny flat arrangement has a meaning derived from the term ‘granny flat interest’ in social security law. Typically, a granny flat arrangement involves an older person transferring some consideration (often title to property or proceeds from the sale of property) to their adult child in exchange for the promise of ongoing care, support and housing. Prior to the law change, the recipient of the consideration was subject to tax on the amount they received. This often resulted in parties entering into informal arrangements with greater potential for elder abuse.
To qualify for the CGT exemption:
the holder of hold a granny flat interest must be of pension age or who have a disability that means they require assistance for most day-to-day activities for at least 12 months
the arrangement must be in writing and indicate an intention for the parties to be legally bound by it
the party receiving consideration must own the property where the granny flat interest is held
the arrangement must not be of a commercial nature.
There is more information on the ATO website (QC 66038) with examples about arrangements involving a main residence.
Takeout: the removal of a taxing point may mean that these arrangements are ones that your clients may now consider in terms of providing care and accommodation for older family members.
Feel free to contact our team should you want to discuss this topic further and potentially have clients who may be in this situation.
This publication is not intended to be and should not be used as a substitute for taking taxation advice in any specific situation. The information in this publication may be subject to change as taxation, superannuation and related laws and practices alter frequently and without warning. Neither BNR Partners Pty Ltd, our employees or agents are responsible for any errors or omissions or any actions taken or not taken on the basis of this publication.