Treasury Laws Amendment (Measures for Consultation) Bill 2021: exempting granny flat arrangements from Capital Gains Tax
13 May 2021
The Law Council supports in-principle the release of the exposure draft of the Treasury Laws Amendment (Measures for Consultation) Bill 2021: exempting granny flat arrangements (GFA) from Capital Gains Tax (CGT) (the Bill).
The Bill amends the CGT provisions in the Income Tax Assessment Act 1997 (Cth) to provide a targeted CGT exemption in relation to GFAs.
Against the backdrop of Australia’s ageing population, and the focus on the inadequacies of aged care as highlighted by the Royal Commission into Aged Care Quality and Safety and the COVID-19 pandemic, GFAs are becoming increasingly common. These arrangements can work well for many families. However, the Law Council has highlighted previously in its advocacy that due to the CGT implications of establishing a formal agreement, these arrangements are often entered into orally. This leaves no protection of the rights of the older person if there is a breakdown in the agreement.
Working with its National Elder Law and Succession Law Committee, and the Taxation Committee of the Law Council’s Business Law Section, the Law Council welcomes the proposed measure which aims to encourage the formalisation of GFAs. Its recent submission to Treasury makes additional comments intended to improve the Bill, including:
- Right to occupy – the Bill provides that an individual holds a granny flat interest in a dwelling under an arrangement if the individual has a ‘right to occupy’ the dwelling for life that has been conferred by the arrangement. The Law Council suggests that the Bill clarify that the CGT exemption should apply whether the GFA establishes a proprietary, or personal right to accommodation.
- Eligibility criteria – The Law Council suggests that the proposed eligibility criteria may be overly restrictive and suggests that retirement be allowed as another criteria.
- Targeted exemption – The Bill provides that a GFA cannot be a commercial arrangement to qualify for the CGT exemption. For clarity, the Law Council suggests that more examples and guidance be included in the legislation and explanatory materials on the commercial requirement. In particular, it suggests that further consideration could be given to situations in which the ‘granny’ pays a nominal rent and would not constitute a commercial arrangement.
- Termination – As above, the right to occupy must be created ‘for life’. The Law Council suggests that the Bill should clearly state that the exemption is not lost in circumstances such as a relationship breakdown; the death of the adult child; and the bankruptcy of the child. Other circumstances where the GFA may end, and where the exemption should not be lost, include the child losing mental or functional capacity, the older person deciding to move elsewhere (to live independently or with another family member), or there being a breach of the GFA by either the child or the older person.