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Granny Flat Interest vs Capital Gains Tax

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Newbie

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Dear ATO Community.

 

My wife and I have purchased a new property. As we are planning to have a parent move in with us, we are doing some renovations to upgrade the kitchen and build an extension for the parent to live. The parent has provided us with a gift - withdrawn from existing super funds - under "Granny Flat Interest" (GFI) for lifetime accommodation and care.

 

After doing some research on tax and pension implications, I have assumed the following:

  •  withdrawl from Super by the parent is tax exempt as the parent is over 60 years old
  •  the gift from parent to child(ren) is tax exempt as a gift
  •  "Granny Flat Interest" agreement between children and parent will exempt the gift from pension deduction

However, it seems that the GFI agreement might result in Capital Gains Tax (CGT) for the children.

 

I am seeking out the opinion of the community that explains why this would attract CGT (as there has been no disposal of assets) and if any recent changes have been made to this as there is a conflict in the requirement for a GFI agreement related to pension, but the same agreement would invoke CGT. Finally, what should we do to avoid the CGT implications and protect the pension of the parent.

 

Your opinion is greatly appreciated. Thank you.

1 ACCEPTED SOLUTION

Accepted Solutions
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Best answer

Taxicorn

Replies 1

@happyfamily 

 

(1) Withdrawl from super when over 60years old is NOT always tax-free

 

With a "Lump Sum Payment" - The Taxable Component - Untaxed Element is taxed at 17% up to the Untaxed Plan Cap Amount

(2019-2020 = $1.5.15 million) and at 47% above that.

 

(2) Gifts are tax exempt.

 

(3)  Difficult to say what the "Gift' will be viewed by Centrelink without first asking. I think if it is a reasonable amount for the "Granny Flat" then it may be ok.

 

(4) Yes, it will attract CGT as a person who grants a right of occupancy for life or a life interest is a CGT event for the person granting the interest. 

https://www.ato.gov.au/General/Capital-gains-tax/Selling-an-asset-and-other-CGT-events/Types-of-CGT-...

 

The ATO has stated that the market value of a lifetime right to reside in a dwelling depends on a number of factors including the life expectancy of the person who is the subject of the right and the nature of the dwelling. 

 

Taxpayers must determine the market value and seek advice, if in doubt.

 

This has a lot more other information that will be useful.

 

2 REPLIES 2
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Best answer

Taxicorn

Replies 1

@happyfamily 

 

(1) Withdrawl from super when over 60years old is NOT always tax-free

 

With a "Lump Sum Payment" - The Taxable Component - Untaxed Element is taxed at 17% up to the Untaxed Plan Cap Amount

(2019-2020 = $1.5.15 million) and at 47% above that.

 

(2) Gifts are tax exempt.

 

(3)  Difficult to say what the "Gift' will be viewed by Centrelink without first asking. I think if it is a reasonable amount for the "Granny Flat" then it may be ok.

 

(4) Yes, it will attract CGT as a person who grants a right of occupancy for life or a life interest is a CGT event for the person granting the interest. 

https://www.ato.gov.au/General/Capital-gains-tax/Selling-an-asset-and-other-CGT-events/Types-of-CGT-...

 

The ATO has stated that the market value of a lifetime right to reside in a dwelling depends on a number of factors including the life expectancy of the person who is the subject of the right and the nature of the dwelling. 

 

Taxpayers must determine the market value and seek advice, if in doubt.

 

This has a lot more other information that will be useful.

 

Highlighted

Newbie

Replies 0

Thanks macfanboy. That was exactly the information I was after.

Time to see the accountant I guess...