Tax Breaks Are Finally Coming to Granny Flats

How To Take Advantage Of Captial Gains Tax On Granny Flats

Tax Breaks Are Finally Coming to Granny Flats

What are these tax breaks and how do they work?

If you’re an elderly Australian or you have elderly parents or family members, it’s likely you already know what a ‘Granny Flat’ is. For those who don’t, a granny flat is a small, detached home that’s convenient, affordable, and made especially for seniors. (Although truth be told, granny flats can be used for other family members also, and as a way to create a passive income stream.) 

Usually, granny flats are placed on existing land next to, or behind, an existing home. (That way, it’s easier to check in on your loved ones from time to time.) They’re small-ish, usually a single floor, and quite affordable to build also. But, like many structures, granny flats have been subject to capital gains taxes over the years. 

Of course, the problem with CGT is that someone has to pay them, and they’re usually quite expensive. Oftentimes, this has caused a liability for elderly Australians and put them at risk of being financially exploited. Worse than that, capital gains taxes can sometimes be the only thing standing in the way of families setting up a formal and legally enforceable arrangement with their parents when placing a granny flat on their land.

“One thing to keep in mind is that the exemption for capital gains taxes on granny flats will only apply if an actual family member (or some other persons with a proven familial tie) is living in the granny flat at tax time. “

Capital Gains Tax For Granny Flats are Being Exempted

The good news is that, on July 1 of 2021, capital gains taxes for granny flats will be exempted (if there’s a formal, written agreement in place at tax time). That’s great news for the 4 million-plus pensioners in Australia, as well as the 4 million more Australians with a disability who would also qualify for the exemption.

One thing to keep in mind is that the exemption for capital gains taxes on granny flats will only apply if an actual family member (or some other persons with a proven familial tie) is living in the granny flat at tax time. If, for example, you’re renting out your granny flat to someone not connected to your family to earn extra income, you’ll still need to pay your capital gains taxes if you sell it.

Stamp Duties Are Being Waived in Australia

Another of the biggest detriments to downsizing is Australia is the transfer taxes on properties, including stamp duties. In fact, a recent study by the AHURI (Australian Housing and Urban Research Institute) found that taxes like stamp duties are a major disincentive for elderly Australians to downsize. Other research has also consistently shown that one of the biggest barriers to purchasing a smaller property and downsizing are stamp duties. (That’s followed closely by the cost of moving to a new home and the proceeds that selling a home would have on a pensioner’s income.)

AHURI’s recent report made it even more clear. They found that a 10% increase in stamp duty costs would lower property transaction turnovers by 3%. Frustratingly, the same findings were found in 2013. That’s when a survey conducted by National Seniors Australia found that downsizing was more challenging for elderly Australians due to stamp duties and other taxes. 

The very good news is that, earlier in 2020, stamp duty rebates of up to $50,000 were announced. These will be made available to Australian property buyers also end people who plan on building granny flats. The discounted stamp duty of 75% would be available to anyone in the next two years who signs a pre-construction contract to build a new granny flat.

Building, Renovating, or Terminating a Granny Flat Will be Exempted from CPT

There has never been a formal agreement for both parties’ rights when building and living in a granny flat. However, the Australian government has finally formalized an agreement on the rules for obtaining a CGT exemption. Australia’s board of taxation has recommended two things;

  • Even if you and your parents occupy a different dwelling on the same property, a granny flat arrangement will be considered one address. 
  • Any rules that apply to the main residence will also be applied to the granny flat if co-living is not involved.

Both of these rules have already been voted on and voted in and will start as of July 1, 2021

Why Is This Being Done Right Now To Exempt CGT for Granny Flats?

On March 19, 2019, the Australian government announced the National Plan to Respond to the Abuse of Older Australians. This also falls in line with the Review of Granny Flat Arrangements by the Australian Board of Taxation. Lastly, the new CGT exemptions also fall in line with the Australian Law Reform Commission’s report titled Elder Abuse: A National Legal Response

As you can see, a lot is being done in Australia to protect our elderly citizens. Two of the benefits of these new rules are the exemption of CGT taxes and discounted stamp duties.

How Is Grouse House Homes Responding to the New Tax Exemptions?

Here at Grouse House Homes, we’ve always known the value of downsizing, as well as the even better value of keeping your elderly relatives close. A granny flat can substantially help your mom and dad, aunt, uncle, and other elderly family members. That’s because downsizing will save them a significant amount in monthly bills for things like utilities.

Frankly, we at Grouse House Homes have argued for years that capital gains taxes should be exempted for granny flats. We’re delighted to see these new exemptions going into place in 2021, and feel that it will be a huge boon to many Australian families.

Our goal has always been to offer affordable housing to all here in Australia. We build granny flats that are durable, livable, and, most of all, affordable. We have many floorplans to choose from, and all of our plans can be modified to fit the individual homeowner.

Seeing these changes gives us hope that Australia is finally doing right by our older citizens, who we have always held in very high regard. Being able to downsize is vital to a pensioner’s income. By removing the impediment of capital gains taxes, many more pensioners will be able to live comfortably in their granny flat without fear that it will one day ruin them financially or negatively affect their children.

If you have any questions about Grouse House Homes, our granny flats, or the new tax exemptions being made, please leave your contact information below, and one of our friendly associates will get back to you as soon as possible.

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