Granny Flats & Why you need to formalize your agreement.

Are you or is someone in your family currently living in a granny flat?

Recently, the Morrison Government announced as part of the 2020-21 Budget that there will be a Capital Gains Tax (CGT) exemption for granny flat arrangements where a formal written agreement exists. This exemption will only apply to formal arrangements between family or personal relationships and will commence 1 July 2021.

The initiative is designed to encourage formalizing these arrangements. The exemption provides an incentive to enter into a formal arrangement and in doing so this, will benefit many vulnerable Australians. This is estimated to impact 3.9 million pensioners and 4 million Australians with disabilities. A large majority of these pensioners tend to be parents living in a granny flat on their children’s family property. The problem is that when family or relationships fall apart, this can often leave the vulnerable person, living in the granny flat, wide open to the dangers of financial abuse and exploitation.

Granny flat arrangements tend to be informal agreements often between family members. These arrangements often work well for the family at first but have potential to be devastating when things go wrong. In a family we assisted, and it is not an uncommon scenario, the older parent contributed to the building of a granny flat onto their adult son’s home and after a few years the son and his wife divorced, leaving the older parent in a financial predicament and with no where to go. The older parent then had to make application to the court in the family law proceedings. In most of these scenarios there is little proof or documentation of the verbal arrangements entered into and this leaves people vulnerable and facing costly and stressful court proceedings.

Other scenarios around granny flats may occur after someone has passed and money may have been invested into one of the adult children’s homes to modify it. What happens to this money now as it usually increases the value of that one child’s home significantly and the provision for the other children is diminished, causing issues, resentments and commonly leads to disputes which may lead to family conflict.

Concerned and currently living in a granny flat with an informal arrangement with your family?

In circumstances where a family relationship breaks down prematurely and property needs to be sold you may be left out of the picture from a financial standpoint. Alternatively, you may get roped into family court proceedings which can consume large amounts of time and money. With this new CGT exemption there is more reason to enter a formal agreement and avoid future risk.

If you are interested in converting your informal granny flat arrangement to a formal agreement, we can assist you in drawing up a formal agreement for your granny flat that will protect you in the future and limit your risk.

For assistance contact:

Kayte Lewis Director Voice Lawyers

p. 02 9261 1954 voice@voicelawyers.com