Granny flats are becoming more of a common feature of the urban environment. No doubt this is due to the ongoing and unremitting nature of the housing affordability crisis, and the relaxing of regulations about where and how they can be built. However, if you are thinking of constructing one, or already have one in place, you need to be aware of all the tax implications, and they can be very significant.

The ATO has released new draft guidance tightening the tax rules for holiday homes, meaning many owners may no longer be able to claim deductions for holding costs like mortgage interest, rates and insurance unless the property is mainly used to produce rental income. While the change may seem technical, it signals closer scrutiny of whether holiday homes are genuinely available for rent, particularly during peak periods.

Buying a new home before selling your old one can raise tricky capital gains tax issues, but a key concession may allow both properties to be treated as CGT-exempt for up to six months. However, strict conditions apply, particularly if the old home was rented out, making it important to understand how the rules and related concessions work before making the move.