CGT exemption for granny flats under 2021 budget

The capital gains tax for granny flats is to be scrapped next year following last night's Federal budget.

From July 1 2021, a homeowner will no longer have to pay capital gains tax where there is an agreement for a family member to reside in their home.

"It will not apply to the creation, variation or termination of a formal written granny flat arrangement providing accomodation for older Australians or people with disabilities," King&Woods Mallesons advise.

"This change will only apply to agreements that are entered into because of family relationships or other personal ties and will not apply to commercial rental arrangements."

The removal of the tax is still subject to legislation passing Parliament.

The exemption will effect around 3.9 million pensioners and around four million Australians with a disability, according to the AFR.

"Under the measure, CGT will not apply to the creation, variation or termination of a formal written granny flat arrangement providing accommodation for older Australians or people with disabilities," Mr Frydenberg said.

"When faced with a potentially significant CGT liability, families may opt for informal arrangements which can leave open the risk of financial abuse and exploitation, for example following a family or relationship breakdown."