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prenders71(Newbie)Newbie
9 Jan 2024

Hi, I'm involved in the administration of a deceased estate. The deceased's main residence has a granny flat out the back occupied by her adult son rent-free. Water is shared supply, electricity and gas are metered separately. Purchased pre-1985, there is only one title. The local council started assessing the granny flat portion seperately for rates about 15 years ago for some reason.


Her son will keep the main house and granny flat. He's worried the granny flat portion somehow will not retain it's PPR exempt status through the inheritance and that there will be a CGT event for a portion of the property.


My view is that as the property is one one title, no income was ever generated by any portion, and the whole lot will be inherited by the adult son/beneficiary, then as far as the ATO is concerned it's one unit, and his mother's PPR exemption will transfer to him entirely, regardless of the seperate metering arrangements and council rate notices.


Thanks for your input!

2,638 views
4 replies
2,638 views
4 replies

Most helpful response

Most helpful replyATO Certified Response

AriATO(Community Support)Community Support
ATO Certified Response22 Jan 2024

Hi @Prenders71,


For income tax purposes the son is treated as having acquired the whole property for its market value at date of death of their mother.


When the son sells the property at some time in the future a CGT event occurs.


A main residence exemption can apply to reduce or exempt the capital gain on sale. See Your Main Residence.


However, a main residence exemption applies to a dwelling on land and if there if there are two buildings then it depends on how the property was used during the period of ownership as to whether a full ownership exemption applies.


In this situation a full main residence exemption from CGT can apply where the owner has used the whole property as their main residence.


Whether the property sale is fully exempt from CGT depends in part on how the property was used. If all of the property was used as one dwelling for the whole of the period of ownership then there is no reduction in main residence exemption on this basis. See TD 99/69


All replies

AriATO(Community Support)Community Support
15 Jan 2024

Hi @prenders71 I'm back again. We need the following info from you -


1. When was the granny flat built?

2. What is the area of the property on which the dwelling and granny flat are located

3. Which local council issued a separate rate assessment for the granny flat?

4. A copy of the rate assessment for the dwelling and granny flat.


prenders71(Newbie)Newbie
20 Feb 2024

Hi AriATO,

Many thanks for your replies and apologies the delay in getting back to you. To your questions;

  1. Granny flat stucture came with the house/built at same time (it's an old stables). Mother acquired the property in 1972. Granny flat was made habitable sometime in the 1970s. One son lived there for 3-4 years. The other son has been living there about 10 years (rent free).
  2. Total property area is about 575msq. The house is about 200-250msq, the granny flat about 50msq
  3. Rated by Stonnington in Melbourne Vic. I think it was only started to be rated seperately from about 2005 (one son started having mail sent to the granny flat and the addressing seems to have triggred the separate rating but not sure about that)
  4. Don't have a copy of the rates I'm afraid and not easy to get but I will work on it. The son currently living there is not releasing documentation easily.

Any light you can shed based on above would be appreciated.

Most helpful replyATO Certified Response

AriATO(Community Support)Community Support
ATO Certified Response22 Jan 2024

Hi @Prenders71,


For income tax purposes the son is treated as having acquired the whole property for its market value at date of death of their mother.


When the son sells the property at some time in the future a CGT event occurs.


A main residence exemption can apply to reduce or exempt the capital gain on sale. See Your Main Residence.


However, a main residence exemption applies to a dwelling on land and if there if there are two buildings then it depends on how the property was used during the period of ownership as to whether a full ownership exemption applies.


In this situation a full main residence exemption from CGT can apply where the owner has used the whole property as their main residence.


Whether the property sale is fully exempt from CGT depends in part on how the property was used. If all of the property was used as one dwelling for the whole of the period of ownership then there is no reduction in main residence exemption on this basis. See TD 99/69


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