On 29 November 2018, the Australian Government announced that the Board would undertake a review of the tax treatment of granny flat arrangements. The request was partly made in response to the 2017 Australian Law Reform Commission’s (ALRC) report: Elder Abuse – A National Legal Response.
The Board’s review involved assessing the tax circumstances surrounding the making of formal, written and legally enforceable family arrangements where, at its simplest, older Australians transfer title to their home, or proceeds from the sale of their home, to their adult child or another trusted person in return for the promise of ongoing housing and care.
Terms of Reference
From the Assistant Treasurer’s press release on 29 November 2018:
The Morrison Government has requested the Board of Taxation undertake a review of the tax treatment of granny flat arrangements and recommend any potential changes.
The review will consider and make recommendations on the appropriate tax treatment of these arrangements, while considering the interactions between the current tax laws and treatment of ‘granny flat interests’ under the social security rules.
In making the recommendations, the review will consider how any changes could raise awareness and provide incentives for older people and their families to enter formal and legally enforceable family arrangements.
The Board is expected to commence the review in early 2019, including broad consultation with stakeholders, with a final report due to the Government in the second half of 2019.
Over the course of the review, the Board consulted widely with experts in this area, including with members of the Elder Law and Succession Law Committee of the Law Council of Australia. The Board is very grateful for their insights, expertise and commitment of time.
The Board appointed a Working Group of its members led by Mr Craig Yaxley as chair, and Mr Neville Mitchell and Mr Peter Quiggin PSM to oversee this review. Former Member and CEO, Ms Karen Payne led the review the outset of the Review before being appointed as Inspector-General of Taxation and Taxation Ombudsman.
The Board completed its review of and provided its report to government in November 2019.
On 5 October 2020, the Government released the Board’s report on the taxation of granny flat arrangements, announcing a targeted CGT exemption for the creation, variation and termination of granny flat arrangements where a formal, written agreement is put in place. The exemption will apply from 1 July 2021, subject to legislation passing.
For further information about the Board’s review of granny flat arrangements, please contact the Board of Taxation Secretariat at firstname.lastname@example.org or (02) 6263 4366.