As the following example shows, there can be heavy costs for failing to do this.

Just recently, I was told the story of a widow who, with the consent of the family, decided to move in with her son and his wife in what could loosely be called a "granny flat" arrangement.

There was nothing to be built - she just handed over $400,000 to her son in exchange for a right to occupy part of the home for life.

They thought this would be a good arrangement for all parties, as they would not fall foul of the Centrelink gifting rules.

But Centrelink was not the problem. Tax was.

In taxation terms, the transaction involved the creation of a legal right, which the son sold to his mother. It is thus a capital gains tax event, with a cost base of zero and no right to the 50 per cent discount because the transaction was created and completed simultaneously.

The well-meaning son found himself with $400,000 added to his taxable income in the year his mum moved in. His tax bill was around $187,000.

These types of arrangements will become more common as people age and choose to live in their own home, or their children's home, rather than moving to aged care.

If this family had got good financial advice, they would have understood that it was better for mum to buy part of her son's property. It still would not have been subject to gifting rules, the family would have maintained their main residence exemption and there would have been no massive tax bill.

A more common method of using a granny flat strategy is to build a separate flat in the home. But once again you need to take advice.

If you build a granny flat to rent out, it is similar to renting out rooms in your house to all and sundry.

If the house, until the building of the flat, had been your residence, it would enjoy the CGT exemption only until the date the flat started to earn an income.

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But from that date, the cost base of your home could be reset to market value. At best, only that portion of the property that you used as your home would be protected from CGT by your main residence exemption.

However, if you are building the granny flat to house a family member and the families interact frequently and the flat does not earn income, both properties would be regarded as one dwelling for CGT purposes. And both buildings would be covered by the main residence CGT exemption.

Keep in mind that by doing it this way she has not established a granny flat for Centrelink purposes as she has legal ownership in the home.

It's important to involve all family members when a granny flat situation is being considered.

One issue that comes up regularly is possible resentment from some family members if a substantial part of the proceeds of the parents' residence are being paid to just one sibling.

Furthermore, there needs to be a Plan B if it happens - as it often does - that mum will need to move into full-time care later.

Experience tells us that the more time spent discussing these issues in preparation, the less time will be involved in fighting later.