The Impact of Upcoming Tax Reforms on Granny Flats: Clarifications on Negative Gearing
The impending tax reforms by the government have raised questions about how granny flats will be affected, particularly concerning whether they offer a way to sidestep the changes to negative gearing. This matter was addressed recently.
During a Senate estimates session, Liberal Senator Andrew Bragg sought clarity on whether newly constructed granny flats could still be negatively geared in light of the proposed tax reforms, which are slated to be implemented starting July 1, 2027.
“I’m trying to get to the bottom of this… Are granny flats included or excluded?” Senator Bragg inquired.
In its latest federal budget, the government revealed plans to restrict negative gearing, a practice allowing investors to deduct losses or costs from rental investments, to only newly constructed residential properties.
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In response to Bragg’s question, Treasury secretary Jenny Wilkinson read from a budget tax explainer.
“A granny flat adjacent to an established property that is not eligible for negative gearing is not an eligible new build,” she said.
“The regulation that will determine what is the definition of a new build will outline all of these details.”
This response caused some confusion during the estimates, with Nationals MP Anne Webster asking a similar question.
This time, Housing Minister Clare O’Neil gave the final answer to the question: Granny flats cannot be negatively geared.
“An established property recently extended a free-standing house constructed through a knock-down rebuild, replacing an older, smaller free-standing house, a granny flat built adjacent to an established property, that isn’t eligible for negative gearing,” she said.
Granny flats have become increasingly popular in Australia in recent years, with some arguing that they could help ease the country’s housing crisis.
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