When granny comes to stay: granny flat agreements and why you need one
Our Principal Lawyer and Managing Director, Kathryn Lewis, was invited to write for the Retirement & Estate Planning Bulletin, a LexisNexis professional journal. Her article, "When granny comes to stay: granny flat agreements and why you need one" (2026) 25(10) REP 125, examines a growing issue in an ageing Australia: how families can formalise intergenerational living arrangements to protect older Australians from financial loss and elder abuse. It reflects Kayte's expertise across family law, mediation and elder law.
by Kathryn Lewis of Voice Lawyers
As Australia’s population ages, intergenerational living arrangements often come into consideration. It is not uncommon for older people to consider downsizing and at the same time consider assisting their family. They may look to realise the built-up equity in the family home or to invest in their children to help them out. These arrangements usually come with an understanding that they will receive care or assistance as they age. These arrangements are referred to as assets for care arrangements.
Since 2021, the Federal Government introduced legislation and a capital gains tax (CGT) break in consideration of these arrangements and by way of incentive to have people formalise the arrangements. These arrangements are usually informal and leave the elder people exposed and vulnerable to elder abuse. The formalised agreement is referred to a granny flat agreement. A granny flat agreement reduces risk of financial abuse and makes the elder person rights more readily enforceable. In 2021, the Federal Government, following the 2017 release of the Australian Law Reform Commission (ALRC) report which examined elder abuse in Australia.1 In particular, the ALRC examined the prevalence of elder abuse in relation to granny flat arrangements. In 2021, the Federal Government introduced amendments to the CGT rules to encourage the documentation of these agreements as part of the response to combat elder abuse.2 A granny flat agreement is typically between family members, but it doesn’t have to be, it can be with a friend. The agreement is essentially an exchange of property or money for long-term care and the security to live somewhere.
Legal framework and the CGT exemption
A “granny flat interest” is defined in s 12A of the Social Security Act 1991 (Cth) as a life interest or right to accommodation for life in a private residence, in exchange for valuable consideration.3 Since 2021, a CGT exemption has existed in relation to granny flat where a parent invests in the home of their child and in exchange, they have a right to live there for life. A granny flat arrangement can be entered into with any party, including family or friends but to be eligible for the exemption the agreement must be formalised4
To be exempt from CGT, a granny flat arrangement must:
• be in writing
• indicate an intention that the parties are legally bound
• cannot not be commercial in nature,5 that is you can’t charge market rent for the property and include:
the parties involved in the arrangement, including the individual(s) with an ownership interest in the property
the circumstances in which the arrangement can be varied or terminated and provision for what happens when the agreement is terminated or varied
• involve a person who has reached the age for the aged pension or required day to day care for a disability
An important distinction is that a granny flat arrangement is a right to occupy the property (for life), not a right to the property itself.
What is considered a granny flat for the purpose of a granny flat agreement?
The reference to a granny flat agreement is the reference to an arrangement rather than a type of dwelling. It may be a granny flat, or it may be the use of a dwelling owned by the grantor or living with them in their main residence.
The criteria is more to do with the life interest for accommodation in exchange for care.6 The arrangement can come about due to a transfer of title of the elder persons residence usually to their adult child or the contribution of money from the sale of their residence to the adult child or contribution to the paying off of a mortgage.
What if there is no written agreement?
If you don’t have a formal written agreement, you are ineligible for the CGT exemption.
Should things go wrong and often family relationships do break down, without an agreement in place the elder person may have to look for a remedy in the courts of equity and in NSW where the sum is more than $750,000 this would result in an action having to be taken in the Supreme Court. The elder person may no longer have access to funds to mount such a costly and involved litigation.
Once such case which illustrates the complexities which can arise is:
• Makaritis v Makaritis (No 2)7
this is an important case not that it creates a special rule about granny flats, but where a granny flat was a key fact in the case. The case was essentially a family dispute, the father needed money to settle his family law matter and transferred his house into a company controlled by his son, as part of a refinancing and living arrangement involving a granny flat.
Bill Makaritis originally owned and lived in a house in Maryland, Newcastle. Bill needed money to deal with the financial outcome of his family law dispute. His son, Luke Makaritis, helped set up a company and family trust structure to refinance the property.Bill transferred the property to the company, Hellenic Property Holdings Pty Ltd, which was controlled by Luke as trustee of the family trust.
The company paid Bill $338,000 for the property, even though the property was worth about $520,000 at the time. Bill said the arrangement was not meant to be a simple sale. He said the understanding was that:
the property would be refinanced using Luke’s financial support
Bill would get enough money to pay off his liabilities
a granny flat would be built for Bill to live in and
the main house would be rented out to help cover the mortgage while Bill lived there rent-free
Bill stayed living on the property after the transfer, and a granny flat was later built. The relationship between Bill and son Luke then broke down. In March 2020, Luke caused the company to issue an eviction notice to Bill. Bill then started Supreme Court proceedings, claiming he still had an equitable interest in the property despite having transferred legal title. The case illustrates how the law of equity may intervene where a parent transfers property into a structure
When granny comes to stay: granny flat agreements and why you need one — (2026) 25(10) REP 125 controlled by a child on the basis of a shared domestic arrangement that later collapses.8 In this case, however, the court did not unwind the transfer of property rather recognised that Bill had a joint endeavour constructive trust in the property and he then had to take further action to realise his portion through the forced sale and division of the proceeds. The process is long, complicated and costly.
Where there is a granny flat agreement in place in NSW at least the agreement is enforceable in the NSW Civil and Administrative Tribunal (NCAT), specifically through its Consumer and Commercial Division a less formal and usually less costly avenue.
The presumption of advancement and it’s risks In New South Wales, the presumption of advancement remains relevant where a parent transfers property to a child or contributes purchase money for property put into the child’s name. In that setting, equity may presume that the parent intended the transfer or contribution to be a gift, rather than that the child was to hold the property on resulting trust for the parent or to provide some type of life assurance of care.
Where an intention is not clear about the transfer of funds from parent to child there will likely be a presumption of advancement applied.9 Clear documentary evidence is required to rebut this presumption. While a granny flat agreement is not definitive it is useful in rebutting this presumption, otherwise there is an onerous burden to prove that the transaction was not a gift.
If the care for asset exchange is not properly evidenced, equity may still characterise the transaction as a gift because of the parent-child relationship or a loan;10 a resulting trust or constructive trust.
Does a granny flat agreement defeat the presumption? There is no special rule that a transaction described as a “granny flat agreement” is exempt from the presumption of advancement. The existence of a granny flat arrangement is one factual feature of the overall transaction. In the written granny flat agreement, it is beneficial to specify that the transfer was not intended as an outright gift; it should record where relevant:
• the parent’s contribution and that it was in exchange for lifetime accommodation
• a clause requiring repayment or adjustment if the arrangement breaks down or comes to an end
• an identified proprietary share, or some other enforceable entitlement
• if relevant express wording that the contribution was a loan, not a gift
• or a declaration that the child holds all or part of the property on trust
• documents showing the parent’s contribution was to secure a defined equity interest
• consistent mortgage, banking, insurance, or settlement documents
• and documents generated at the time of purchase showing how the parties themselves described the arrangement.
Protection against elder abuse
Without an agreement in place the elder person can experience a significant loss of power in the relationship and things can and do go wrong. Generally older people don’t obtain legal advice before entering into these familial arrangements they just evolve and once the autonomy of the elder person begins to diminish so too does their bargaining power creating a power imbalance in the relationship leaving them incredibly vulnerable and open to elder abuse.11
When granny comes to stay: granny flat agreements and why you need one — (2026) 25(10) REP 125
Kathryn Lewis
Managing Director, Lawyer and Mediator
BCom (HR & BEc), LLB, GDLP, ATCL (Lond), PRI Med, AMDRAS, LLM (Dispute Res)
Voice Lawyers
kayte@voicelawyers.com
About the author
Kathryn (Kayte) Lewis is the founder and principal lawyer at Voice Lawyers. Voice Lawyers have offices in NSW and Qld. Kayte practices in family law and employment law and is a nationally accredited mediator and sits on multiple mediator panels: Law Society of NSW, Family Law Settlement Service, The Resolution Institute and The Small Business Commission. She is a member of the Law Society of NSW, the Resolution Institute and a Fellow of The College of Law.
1 Australian Law Reform Commission Elder Abuse-A National Legal Response ALRC Report 131 (2017).2 Treasury Laws Amendment (Measures For Consultation) Bill 2021 (Cth): Exempting Granny Flat Arrangements From CGT.3 Social Security Act 1991 (Cth), s 12A.4 Australian Taxation Office, Granny flat arrangements and CGT, accessed 1 June 2026 www.ato.gov.au/individualsand-families/investments-and-assets/capital-gains-tax/property-and-capital-gains-tax/granny-flat-arrangements-and-cgt5 See above.6 Above n 3, s 12.7 Makaritis v Makaritis (No 2) [2022] NSWSC 1690; BC202217323.8 Makaritis v Makaritis (No 3) [2023] NSWSC 409; BC202303362.9 K Bozinovska “Rethinking the presumption of advancement in contemporary Australia” LSJ Online 1 December 2019 https://lsj.com.au/articles/rethinking-the-presumption-of-advancement-in-contemporary-australia/ .10 Koprivnjak v Koprivnjak [2023] NSWCA 2; BC202300386.11 T Cockburn “Addressing power dynamics in granny flat arrangements: Access to justice when family agreements lead to disagreements” Queensland Law Society Succession and Elder Law Conference, 2023, Brisbane, Australia