Know the legalities
Before you redevelop your home as collaborative housing or co-buy a site to redevelop with others, understand the legal implications. This page highlights some potential implications for personal finances and explores various options for setting up property ownership rights. You should always seek expert legal and financial advice tailored to your situation.
Also see development approval for information about planning and development.
Home owners be aware!
If you’re thinking about adapting your own property, there are some issues you need to be aware of. Selling off or renting out portions of your home could have implications for taxation and social security eligibility. Some key points are outlined below, but always seek tailored expert advice.
Selling off portions of the family home
If you subdivide your main residence and sell off a portion, the profit you make could be counted towards the assets test for the age pension and other social security benefits. You could also be liable for capital gains tax on the portion that has been sold. Subdividing land does not attract CGT if you retain ownership of the subdivided blocks. If your land was purchased before 20 September 1985 (when capital gains tax came into effect) you will only pay CGT on profits made from the sale of any dwellings you construct on the land that aren’t your main residence, not the land itself.
Renting out portions of the family home
If you rent out portions of your main residence, the income is generally regarded as assessible income for tax purposes. You will no longer be eligible for the full capital gains tax exemption upon sale of your home. You will lose a portion of your main residence exemption based on the floor area rented out and the length of time it was rented (ATO). The rental income may be counted in the income test for social security, unless your boarder is a parent, child or sibling.
Owning property as tenants in common
When parties co-own property as tenants in common, each party owns a defined amount of shares, which they can sell or give away in a will. The shares owned by each party can be equal or unequal. This is a typical form of ownership for investors co-buying property that’s on a single title. When buying as tenants in common, seek expert legal advice and have your lawyer develop a legal co-ownership agreement.
Changing the land title
A land title is a legal structure that defines the right to ownership of real estate. In some cases you may want to change the title to better suit your group’s goals with respect to ownership. For example, you may consider strata title if planning controls permit it. Company title may also be a solution, particularly in situations where planning controls require dwellings to remain on a single title. This is a complex area with legal structures varying in the different states of Australia, so tailored legal advice is a must. The title may affect home valuation and lending criteria, so also seek financial advice.
Which land title?
There are various titles that can be used for collaborative housing and it’s important to choose the one that works best for your situation and goals. Specific legal advice tailored to your situation should be obtained. Described below are some titles most likely to apply to small blocks:
Torrens title - very commonly used for single detached housing, probably a good option if planning regulations allow subdivision on your site or you have adjacent parcels of land, and the households will not be located one above the other.
Strata title - if the zoning allows for more than one dwelling on site, strata title could be a good option. It allows a combination of private ownership (of your residence) and shared ownership (of communal areas and facilities), with management of the common property by an owners corporation and executive committee. Strata is most commonly used for apartments and other types of attached houses.
Company title - this may be a good solution in situations where planning regulations require all dwellings to remain on a single title (most ‘granny flat’ legislation falls into this category). In this structure, a company holds the overall ownership and residents own shares that give them ownership rights to their home. It is described by some experts as suitable for small groups due to the ease of set up, flexibility and limited liability of members for any debts of the company itself, but it is less well understood which can have an effect when obtaining finance, buying, and selling. As there is one owner, the company, it can be set up so that the whole company needs to give permission for sale or lease of a unit. This can work as a pro or con, but in a collaborative housing situation it is more likely to be beneficial as it provides residents with the security that they’ll have a say in decisions about any changes to their community.
Granny flat interest
This is usually for situations where families or friends are housing older people. You can pay for the right to live in a home you don’t own, and this right lasts for life but is not part of your estate when you die. How this is set up determines what’s included in the pension assets test. You can have a granny flat interest in any type of home, it doesn’t only apply to granny flats. See here for more information and always seek tailored financial and legal advice.
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