With the rising cost of living and an ageing population, many families in Queensland are turning to multi-generational living. Granny flat arrangements, where an elderly parent contributes money to live with or near family, can be a beautiful solution that allows loved ones to stay close, while sharing care and support. But without the right legal protections, these arrangements can quickly unravel.
At Nurture Law, we help families take a thoughtful and legally secure approach to these agreements.
What Is a Granny Flat Agreement?
A granny flat agreement is a formal, legally binding arrangement that allows an elderly parent (or another family member) to live on someone else’s property – usually their adult child’s—in exchange for financial contributions. This might involve:
- Building a self-contained flat on the child’s property
- Contributing to renovations or home modifications
- Transferring a property to a child
- Purchasing a home in the child’s name with the right to live there
These arrangements can be flexible, but without a clear agreement in writing, risks can arise, especially if relationships change or the parent needs aged care.
Why a Written Agreement Matters
While these arrangements often stem from good intentions, misunderstandings can occur if expectations aren’t clearly outlined. A well-drafted granny flat agreement:
- Sets out the rights and responsibilities of all parties
- Clarifies what happens if the parent moves out, needs care, or passes away
- Helps avoid future disputes and protect assets
- Can help with Centrelink and tax compliance
Centrelink & Tax Considerations
Centrelink recognises “granny flat interests” where a person pays for a lifetime right to reside without retaining legal ownership of the property. If set up correctly, this can avoid being treated as a “gift” and preserve pension entitlements.
From a tax perspective, as of 1 July 2021, the ATO provides a Capital Gains Tax exemption for formal, non-commercial granny flat arrangements, provided certain conditions are met.
Real-Life Examples
Edith’s story is one of success – she invested in building a flat on her daughter’s property, and they had a clear agreement in writing. This meant Edith’s right to reside was secure, and her daughter’s tax position was protected.
What Should Be in a Granny Flat Agreement?
A thorough granny flat agreement should cover:
- Each party’s details
- The parent’s right to reside
- Financial contributions and how they’re treated
- Responsibilities for ongoing costs and care
- What happens if the parent needs aged care or the property is sold
- Dispute resolution steps
- Confirmation that each party has received independent legal and financial advice
The Bottom Line
Granny flat arrangements can be a wonderful way to support loved ones and strengthen family bonds, but they should never be based on handshakes or assumptions. A legally binding agreement ensures everyone is protected and clear on their rights.
At Nurture Law, we take the time to listen and craft agreements that work for your family, now and into the future.
Thinking of setting up a granny flat arrangement?
Get in touch with Nurture Law today to protect your loved ones and your peace of mind.
