Removing Capital Gains Tax for granny flats

October 28, 2020.

Treasury has announced a capital gains tax exemption on ‘granny flats’, in an attempt to provide safe accommodation for elderly or disabled Australians. The reform also aims to provide a boost to the construction industry by stimulating demand for small builds in backyards.

The measure will commence as early as July 1, 2021 subject to the passing of legislation.

Currently, a principal place of residence is exempt from Capital Gains Tax, whereas investment properties are subject to tax on any capital gains on the sale of a property. That means for a granny flat being rented in the usual way with a residential tenancy agreement, Capital Gains Tax would be paid on the portion of the capital gains that is attributable to the value of the granny flat.

Because of this, many Australians have informal arrangements with elderly parents or people with disabilities living in a granny flat on their property. With no formal arrangement in place, there is a risk of financial abuse and exploitation in the event of a relationship breakdown.

Under the announced exemption, Australians will be able to build a granny flat, sign an agreement allowing an elderly or disabled family member to occupy the flat, and no longer face the prospect of paying capital gains tax.

In a joint statement, Treasurer Josh Frydenberg and Housing Minister Michael Sukkar said around 3.9 million pensioners and around four million Australians with a disability would be eligible for the exemption.

It is expected that this reform will boost the construction industry and stimulate demand for new housing and support tradies’ jobs at a time when the economy needs it most.

Image: Australian Institute of Architects – 2013 Winner – Re-imagined Granny Flat – TAKI

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