CGT exemption on granny flats

Needing extra accommodation for your elderly parents, or need to be close to care for a disabled member of your family? The granny flat CGT exemption announced in the October 2020 budget may be the answer.The Federal Government announced in their latest Budget “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”, Mr Frydenberg said.This exemption will urge people to consider granny flats as an option to care for and keep older and disabled family members closer, without having to consider the possible unfavourable tax consequences of this option.

Granny Flat, Turramurra, from SBR Group Pty Ltd Gallery in Sydney, NSW.

When does the granny flat CGT exemption begin?

Although this legislation will need to pass parliament, it is intended to begin 1 July 2021. We will let you know when legislation has been passed.

Who does the CGT exemption for granny flats apply to?

There must be a family relationship or personal tie between the property owners and the ‘family’ tenants. A formal arrangement between interested parties must be entered into. For example, if you built a granny flat in the backyard of your Sydney residence for your elderly parents, a formal agreement between you and your parents will need to be drawn.

Who does the CGT exemption for granny flats NOT apply to?

The CGT exemption will not apply to commercial rental arrangements.

Why the CGT exemption for granny flats is important?

Capital gains tax is a key consideration for families when building a granny flat in their back yard – and could be a key drawback preventing families from creating formal and legally enforceable granny flat arrangements. A granny flat is a clever solution for a family to care for elderly or disabled members of their family. However, the granny flat can add significant value to your house (as a main residence), plus the rent received from your relative living in the flat, resulting in the owner of the main residence having to pay capital gains tax on this gain when they sell their house.By exempting the CGT on a granny flat for elderly or disabled members of the family, families can create formal and legally enforceable granny flat arrangements.

Building a granny flat

If you have an elderly or disabled relative and think a granny flat could be the answer to caring for them, this may be the time to consider building a granny flat. The tax implications for this arrangement may be relieved when this legislation has been formalised.SBR Group have built many granny flats for our Sydney clients. Granny flats are a great way to ensure members of your elderly of disabled family can be cared for closely whilst remaining independent. This new legislation may provide possible CGT exemptions, and create a financially stronger option. There are several things you do need to consider and be aware of before you start to build a granny flat.

1 – What are your council regulations for granny flats?

Head to your local council website or visit their planning department to discuss the zoning and regulations you need to build a granny flat. The property must be zoned residential and be a minimum of 450m2. However, other requirements do vary between councils, so you will need to check with your local council.

2 – Is my property suitable for a granny flat?

After your initial research with the council, does your property meet the regulations for granny flat. Are there ways you could build a granny flat to meet council regulations? When you are satisfied your property would be suitable for a granny flat, start thinking about the location on your property of the granny flat and how access to the second dwelling would work.A council or accredited certifier can certify your granny flat as complying development without the need for a development application. However, your granny flat must meet specific standards in the State Environmental Planning Policy (Affordable Rental Housing 2009).

Still not sure whether your property meets council regulations? Call an SBR Group builder on 1300 676 166 now for help.

3 – What are your granny flat requirements?

  • What needs have to be met for your elderly parent or disabled relative to live comfortably and be cared for?
  • How many bedrooms do you need?
  • Will they require special access such as wheelchair access, no stairs, larger shower stall?

Also, don’t forget to consider their future needs as well.

4 – Get quotes to build a granny flat.

Now that you have a fair idea of the size of your granny flat that is required, call several Sydney granny flat builders to get average costs to build a granny flat that includes the requirements your family member needs.

5 – Do you have sufficient money to build a granny flat?

Once you have the cost range to build a granny flat, do you have the funds or access to these funds to build your granny flat? Don’t forget to include planning costs, insurance and legal fees in the total.

6 – Are your family members willing to go into a formal arrangement with the granny flat?

This is a requirement to qualify for the CGT exemption. Speak to your solicitor about the specifications of what the contract should entail and what the formal agreement will cover to ensure everyone is clear.

Thinking of building a granny flat in Sydney?

We recommend you talk to your accountant first to ensure your circumstances will meet the CGT exemptions. As legislation yet needs to pass parliament to formalise this exemption, it is still worth pursuing the granny flat. Tax accountants and the industry have been pushing for this kind of tax relief to help families care and conveniently look after vulnerable family members.

We will let you know when legislation has been passed and the formal arrangements of this CGT exemption.

SBR Group team of building specialists would be happy to have a chat to you about what you need to consider to build a granny flat in your Sydney backyard. Contact us here.

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