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Edited version of private advice
Authorisation Number: 1052126976781
Date of advice: 13 June 2023
Ruling
Subject: CGT - granny flat arrangement
Question 1
Does the Permissive Occupancy Agreement (POA) entered into between the parties on XX/XX/20YY create a granny flat interest for the purpose of section 137.10 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
Yes.
A granny flat arrangement is a written agreement that gives an eligible person the right to occupy a property for life. A granny flat interest can be held in any type of property, provided it is a dwelling. This includes the owner's main residence or a separate property. The interest may be in part or all of the property. For more information search 'QC 66038' on ato.gov.au
Question 2
Did the arrangement set out in the POA dated XX/XX/20YY give rise to a Capital Gains Tax (CGT) event for the purpose of section 137.15 of the ITAA 1997?
Answer
No.
CGT does not apply when a granny flat arrangement is created, varied or terminated. The exemption applies if the owners of the property are individuals, they have an eligible interest in the property and the owners and the individuals with the granny flat interest enter into a written binding arrangement and it is not commercial in nature.
This ruling applies for the following period:
Financial year ending 30/XX/20YY
The scheme commenced on:
XX/XX/20YY
Relevant facts and circumstances
On XX/XX/20XX, Party A and Party B (the Parties) entered a written arrangement (the POA).
At the time of entering the POA, Party A was above pension age.
The relevant terms of the POA were:
(1) Party B agrees to provide accommodation, food and clothing for the life of Party A.
(2) The agreement, once signed, is binding upon the Parties.
(3) Party A will pay the sum of $XX in consideration for the agreement and to cover the costs of Party A's housing and care for the whole of Party A's natural life.
On XX/XX/20XX, pursuant to the terms of the POA, Party B entered a contract to purchase the Dwelling for Party A and Party B to live in.
On XX/XX/20XX, Party A transferred $XX to Party B to be applied towards payment for the Dwelling.
On XX/XX/20XX, settlement of the contract to purchase the Dwelling occurred. The Parties moved into the Dwelling.
On XX/XX/20XX, the Parties terminated the POA.
Relevant legislative provisions
Income Tax Assessment Act 1997 - Section 137-15
Income Tax Assessment Act 1997 - Section 137-25