{"id":289,"date":"2019-04-23T19:18:48","date_gmt":"2019-04-23T09:18:48","guid":{"rendered":"https:\/\/bantacsfinancialsolutions.com.au\/Nblog\/?p=289"},"modified":"2019-04-23T20:28:44","modified_gmt":"2019-04-23T10:28:44","slug":"granny-flat-tax-trap","status":"publish","type":"post","link":"https:\/\/bantacsfinancialsolutions.com.au\/Nblog\/granny-flat-tax-trap\/","title":{"rendered":"Granny Flat Tax Trap"},"content":{"rendered":"<div class=\"entry\">\n\n\n<p>A fundamental principle is to take advice before you undertake any significant financial transactions.<\/p>\n\n\n\n<p>Recently, I was told about a widow who decided to move in with her son and his wife in what could loosely be called a \u201cgranny flat\u201d arrangement. There was nothing to be built \u2013 she handed over $400,000 to her son in exchange for a right to occupy part of the home for life. They thought this would be a good arrangement for all parties, as they would not fall foul of the Centrelink gifting rules.<\/p>\n\n\n\n<p>But Centrelink was not the problem. Tax was. In taxation terms, the transaction involved the creation of a legal right, which the son sold to his mother. It is thus a capital gains tax event, with a cost base of zero, and no right to the 50% discount because the transaction was created and completed simultaneously. The well-meaning son found himself with $400,000 added to his taxable income in the year his mum moved in. His tax bill was around $187,000.<\/p>\n\n\n\n<p>If this family had got advice, they would have understood that it was better for mum to buy part of her son\u2019s property. It still would not have been subject to gifting rules, the family would have maintained their main residence exemption, and there would have been no massive tax bill.<\/p>\n\n\n\n<p>A more common method of using a granny flat strategy is to build a separate flat in the home. But once again you need to take advice. If you build a granny flat to rent out, it is similar to renting out rooms in your house to all and sundry. If the house, until the building of the flat, had been your residence, it would enjoy the CGT exemption only until the date the flat started to earn an income.<\/p>\n\n\n\n<p>But from that date, the cost base of your home could be reset to market value. At best, only that portion of the property that you used as your home would be protected from CGT by your main residence exemption.<\/p>\n\n\n\n<p>However, if you are building the granny flat to house a family member, and the families interact frequently, and the flat does not earn income, both properties would be regarded as one dwelling for CGT purposes. And both buildings would be covered by the main residence CGT exemption. Keep in mind that by doing it this way she has not established a granny flat for Centrelink purposes as she has legal ownership in the home.<\/p>\n\n\n<\/div>","protected":false},"excerpt":{"rendered":"<p>A fundamental principle is to take advice before you undertake any significant financial transactions. Recently, I was told about a widow who decided to move in with her son and his wife in what could loosely be called a \u201cgranny flat\u201d arrangement. There was nothing to be built \u2013 she handed over $400,000 to her &#8230;<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[18],"tags":[],"class_list":{"0":"post-289","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-retirement","7":"anons"},"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.1.1 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Granny Flat Tax Trap - Noel Whittaker&#039;s Blog<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/bantacsfinancialsolutions.com.au\/Nblog\/granny-flat-tax-trap\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Granny Flat Tax Trap - Noel Whittaker&#039;s Blog\" \/>\n<meta property=\"og:description\" content=\"A fundamental principle is to take advice before you undertake any significant financial transactions. 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