Property swap with the in-laws

OK, so the situation is as follows:

My wife, son and I currently live rent free in my wife’s parents house which is a 3 bedroom house in Warriewood, Sydney with a pool and is close to the beach, there is also a flat out the back. Its valued at approx. $1,000,000 and they have no mortgage on it. My parents-in-law live 5-6 days a week at their other house in Woy Woy and on the weekend come back to Warriewood and stay in the flat (its a great set up as they help babysit). We have a written agreement for another 2 years to live there and as long as we pay the bills and upkeep the house,they are happy. We've spent about 10K in improvements (pool fence – a must, new blinds, paint etc) so love it and the set up.  

We own a 2 bedroom unit in Dee Why, Sydney, value $600,000 (mortgage left $400,000) and we rent it out for $550 per month.

Its a very good arrangement and I feel privileged they are letting us get ahead and everything seems to be working well, so much so that we would now like to own the Warriewood house. My Mother in law suggested we swap the house for the unit (plus cash or an arrangement where we would pay them on a regular basis for the difference).

So is the swap (after the agreement is up) beneficial and is they anyway we can get around having to pay capital gains tax (legally of course)?

Let me know your thoughts.