Ok, I see ...one possibility would be to retain the unit as shelving where it is and wall mount the tv on the adjacent wall so that you can optimise seating arrangement. Otherwise I think you are on the right track, a circular rug would work, maybe a couple of mid century chairs might look nice, you could put some trailing plants up high away from your little one, maybe a basket or two to keep toddler clutter in check would go with an eclectic kind of look. If you move to a larger space in the future, mid century chairs would be easy to pair with a couch.. I think try and bring as much storage as you can to keep the space manageable.

keep in mind that my plan has single external walls and all the inside and outside walls are 10cm thick to make drawing easier and the depth of the verandahs includes the eaves, adding a brick veneer would use more space and given the choice it would be lovely to plan for a covered walkway and raked ceilings in the living areas and this is a very basic gable roof but there are lots of more exciting/expensive roof options to consider

By the plan , I'm guessing 60's or 70's build ? I'm also guessing wooden floors ? All of that would make matching everything more difficult than a modern build , but not impossible . The back section doesn't look huge , assuming its roughly to scale , and the garage is a further problem . I'm lazy , so I'd sell , put the $200k towards your new ( even if its old ) place that is bigger and has most or all of what you want . Knock down/rebuild would be a lot more than your budget . Amything else I would put in the not practical/too hard basket -- I suspect if your plan and layout is accurate , you'd either need a 2 storey extension ( expensive and hard to successfully do that era easily ) , or maybe dig under or jack up and add a basement . My head hurts at those though . . . . . . . . . . . .

for the banquette to be wide enough to lay on it would need to be at least as deep as a narrow single bed which makes it too wide to sit on comfortably without a very thick back rest or a giant pile of cushions to clutter up the space...why not consider a back and sideless freestanding daybed so the primary purpose is laying down and the sitting to dine is only short term and doesn't need a backrest ....this example or similar with taller legs would be a simple economical way to add the day bed feeling without expensive built ins and two along the window wall could look quite inviting with a simple throw and scatter cushion