The federal government is moving to protect the rights of older people who may be vulnerable to financial abuse from family members under so-called ‘granny flat arrangements’.
Granny flat arrangements refer to a situation where elderly parents hand their assets over to adult children in exchange for accommodation or care, for example a parent may give their children their home and live in a granny flat in the backyard.
A 2019 Board of taxation review of granny flat arrangements noted that these arrangements had traditionally been based on trust ‘natural love and affection’.
But it says they can also have significant risks for ageing parents.
“Namely, that the older person transfers substantial money or property in return for a mere promise or expectation, with nothing to show for the transferred assets,” the review says.
Treasurer Josh Frydenberg announced ahead of last week’s budget that granny flat arrangements will now be exempt from capital gains tax if there is a formal written family agreement.
A legal agreement will recognise and protect the assets of the older person, the Treasurer 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,” he said.
The measure will start from July next year subject to legislation being passed.
Age Discrimination Commissioner welcomes move
Age Discrimination Commissioner Kay Patterson has welcomed the removal of disincentives to have a formal, legal agreement, saying it will protect the financial rights of older people.
I’ve heard of too many cases where an older person has contributed significant money to build a ‘granny flat’ or extension to their children’s home, on a verbal understanding that they will have accommodation and be cared for in exchange – but if the relationship breaks down it can have devastating effects, and can even leave the older person homeless.Dr Kay Patterson
“Financial elder abuse is on the rise during COVID-19 so making it easier to formalise arrangements to protect older people is important,” Dr Patterson said in a statement.
“I’ve heard of too many cases where an older person has contributed significant money to build a ‘granny flat’ or extension to their children’s home, on a verbal understanding that they will have accommodation and be cared for in exchange – but if the relationship breaks down it can have devastating effects, and can even leave the older person homeless.
“When it comes to preventing financial elder abuse, family agreements, along with enduring documents, play a vital role in ensuring that an older person’s wishes and best interests are protected.”
There are currently around 3.9 million pensioners and around 4 million Australians with a disability who would be eligible for a CGT exemption under this change.
Mr Frydenberg said the measure is consistent with the Government’s National Plan to Respond to the Abuse of Older Australians, the Board of Taxation’s Review of Granny Flat Arrangements, and the 2017 Australian Law Reform Commissions Report: Elder Abuse a National Legal Response.
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