Legally Documenting Your Granny Flat Agreement

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Written by James Kelly, Partner, Wills & Probate Lawyer 

Older Australians have a number of options for accommodation when they no longer wish or are no longer able to live in the family home. Those options include downsizing, independent living in a retirement village or, if assessed, residential aged care.

However, another alternative that many Australian families are considering is seniors living with the family in independent accommodation in what is commonly referred to as a granny flat. While other accommodation options all require documentation, many times people take up the granny flat option without documenting what has been agreed between the family members. This can be at a detriment to the family, as seniors on a pension can create unintended consequences by not entering into legal granny flat agreement.

There are many reasons why arrangements made for accommodation must be documented and the document should be reviewed and amended, if and when circumstances change.

For example, you may live in accommodation with your children or vice versa and have “a granny flat agreement” in place but due to a change of location ie the property is sold and another bought, the agreement should be updated to reflect a change of address and any other changes outlined in the original agreement.

The recent Commonwealth budget has also emphasised the importance of a written agreement. Depending on the circumstances these arrangements could lead to a Capital Gains Tax (CGT) liability on the sale of the property.

The recent 2020-21 Federal Budget has clarified that there will be no CGT where the arrangement is created or varied or terminated where there is a formal written agreement in place. The arrangements will apply to older Australians and those with a disability. The government estimates this could be as many as 3.9 million pensioners and 4 million Australians with a disability.

The CGT exemption will only apply because the relationship is one characterised as being “family relationships or other personal ties”. It does not apply where accommodation is provided for a commercial rent. The legislation for the exemption is yet to pass Parliament and would commence on 1 July 2021.

If you have a granny flat arrangement in place or are considering that option, or are caring for a senior family member please talk to one of the lawyers in our Elder Law team for advice. If you have any questions about Granny Flat agreements, or anything else regarding Elder Law, don’t hesitate to contact Owen Hodge Lawyers on 1800 770 780.

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