Know the tax implications of Granny flat leasing Vs Granny flat arrangement!
22 August, 2022 BY Bibek Nepal, CPA

Know the tax implications of Granny flat leasing Vs Granny flat arrangement!

With an ageing population and a rise in property prices, granny flats are becoming increasingly popular amongst Australian homeowners.

A granny-flat is a small, self-contained home having a separate entrance, but not a separate title, and is built within the boundary of the main property.

A granny-flat can’t be sold separately unless the property is subdivided under a separate title.

Your family home or main residence is generally exempt from capital gains tax (CGT), however, the granny flat (which becomes a part of the overall property) may or may not be exempt.

Depending on how you use it (and who is going to use it), granny flats can have different implications when the property is sold later.

If you enter into a granny flat arrangement with eligible personal (who may be your relative or friends), CGT exemption applies which means, you don’t have to pay CGT on the capital gains made on the property.

Granny flat arrangement is a written agreement that is not commercial in nature that gives an eligible person the right to occupy a property for life.

However, if you are leasing the granny flat for rent, it would be considered a commercial arrangement and so, your property could become partially liable to CGT in the event of a sale.

Any capital gains made on the property since the time the granny flat was constructed would be subject to CGT calculated in proportion to the area of property occupied by the granny flat.

For example, if the granny flat only occupies one-fourth of your overall property, only one-fourth of the increase in value since the construction of the flat would be subject to CGT.

It could get even more complicated if the granny flat is not used to generate rental income on a full-time basis.

In this case, the property would only be subject to CGT proportionately for the period it was used for income-producing purposes.

If you’ve held the property for at least 12 months at the time of sale, you would be eligible for a 50% discount on CGT.

Get in touch with us if you have any questions or need help understanding the tax implication of Granny flat leasing Vs Granny flat arrangements.

Disclaimer: This article is provided as general information only and does not consider your specific situation, objectives, or needs. It does not represent accounting or tax advice upon which any person may act. Implementation and suitability require a detailed analysis of your specific circumstances. Before taking any action, consider your own circumstances and seek professional advice.

Blog

Related Blogs

May 8, 2023
BY Bibek Nepal, CPA
Tax planning refers to the process of arranging your finances in a way that minimizes your tax li...
February 27, 2023
BY Bibek Nepal, CPA
What is Fringe Benefits Tax? Fringe Benefit Tax (FBT) is a tax levied on non-salary benefits o...
January 15, 2023
BY Bibek Nepal, CPA
  Happy New Year! It’s that time of the year to muse on what you hope to accomplish over the...
December 4, 2022
BY Bibek Nepal, CPA
Companies are subject to a tax rate of 30% on their taxable income, except for certain companies ...
November 22, 2022
BY Bibek Nepal, CPA
Businesses are continuously evolving over time because the industry is constantly evolving as wel...
November 8, 2022
BY Bibek Nepal, CPA
If you are Australian resident for tax purposes, , you will need to declare and pay tax on your w...
October 24, 2022
BY Bibek Nepal, CPA
You may be considered to have taken Div 7A loan from your company if you (or your related party)...