Legislation changes to address capital gains tax

Sometimes granny flat agreements which involve the transfer of real estate create a capital gains tax event.

The parties to the agreement may be caught by surprise and it is arguable that such tax was never intended to apply to these family agreements.

The Commonwealth goverment in fact encourages granny flat agreements by ameliorating gifting (deprivation) rules for pensioners where a genuine granny flat arrangement is in place.

It was announced in the 2020 Federal budget that an exemption would apply where there is a formal written agreement.

Part of the ATO website announcement reads:

The exemption will apply to arrangements with older Australians or those with a disability. The measure will have effect from 1 July (2021) after Royal Assent of the enabling legislation.

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.”

This will mean that to avoid any risk of taxation liability a written agreement will have to be entered into.

We will report further on these changes when more detail is known.