Granny flat provisions 108-06010040

Granny flat interests have special residence provisions applied. It is the same for retirement villages and sale leaseback homes.

A granny flat interest is created when a customer pays for:

• a life interest or
• right to accommodation for life and
• it is in a private residence, that will be their principal home

A rented property can be a granny flat right or interest for a person if the lessee:

• guarantees accommodation for life, and
• provides a different property if the lease ends

A person cannot have a granny flat right or interest in a property in which they have legal ownership.

Granny flat rights are usually family arrangements, rarely covered by a written contract or agreement. Lack of a written agreement does not matter for these rules.

If the lessee of the property provides the life interest in return for a payment, proof must be sighted that states:

• they guarantee the life interest, and
• if the lease ends, the granny flat right will continue, even if it is at a new address

Note: customers should seek financial and legal advice before entering into a granny flat interest. Services Australia recommends the customer gets a legal document drawn up so there is proof of the agreement. This can help prevent problems later if things change.

Customers should seek advice about capital gains issues. They can seek advice from the Australian Taxation Office (ATO), a lawyer or an accountant.

Capital gains may apply when creating a granny flat right.

A customer creates a granny flat interest if they do any of the following:

• transfers all legal title to their home to another party and keeps a right to live for life in that property, or in another property owned by the other party
• pays to construct and fit out a home on another person's property and keeps a right to live in it for life
• provides some or all of the purchase price of a property in another person's name and keeps a right to live in it for life

There is no deprivation when a customer creates a granny flat interest in the situations above.

There may be deprivation if a customer transfers or gifts additional assets. A customer is considered deprived of an asset if they transfer assets in return for a promise of future accommodation. This is because they are not considered to have received adequate financial consideration. See Assessing deprivation/gifting.

A test, known as the Reasonableness test, is applied by a Complex Assessment Officer (CAO) to see if there is deprivation. This test uses a modified table of life expectancies. For more information, the References page links to the Guide to Social Security Law, 4.6.4.60.

Additional assets may include:

• land that is not an exempt asset under the home and curtilage rules. If the land is considered as part of the principal home under extended land use test it is considered as part of the transfer of title of their home for the purposes of the Granny flat interest
• commercial properties
• financial investments or
• cash

Staff must apply the reasonableness test as the customer is considered to have transferred additional assets if:

• a customer's principal home and adjacent land covered by the private land use test would be subject to the granny flat rules, and any extra land would be subject to the reasonableness test, and
• this property was transferred to create a granny flat interest

A customer may give money to another person in exchange for a life interest. A CAO must apply the Reasonableness Test in all cases when a customer gives money in return for a granny flat interest.

A customer may wish to live with more than one family member. They will have more than one granny flat interest. The 'Reasonableness Test' is applied by a CAO when this occurs.

The entry contribution is the amount paid for the granny flat interest. It determines the customer's 'homeownership' status for the assets test and Rent Assistance.

To determine home ownership status, compare:

• the entry contribution and
• the Extra Allowable Amount (EAA)
• the EAA is the difference between the homeowner and non-homeowner assets limits at the time the granny flat interest is created

If the entry contribution is:

• more than the EAA, the customer is a homeowner. Rent Assistance (RA) is not payable
• less than or equal to the EAA, the customer is a non-homeowner. RA is based on the amount of maintenance fees paid. The entry contribution is recorded as an asset of the customer but is not deemed

Funds from the sale of the customer's principal home may be exempt from the asset test.

If the amount they intend to use to set up the granny flat rights is:

• more than the EAA,
• the customer is a homeowner
• the portion of the sale amount to be used to set up the granny flat right is exempt from the assets test for 24 months from the date of sale for sales finalised on or after 1 January 2023, with an extension of up to 36 months total in some circumstances. For sales finalised before 1 January 2023, the exemption applies for 12 months with an extension of up to 24 months total in some circumstances. See Sale of principal home
• less than or equal to than the EAA,
• the customer is a non-homeowner from the sale date
• there is no asset test exemption

Services Australia assesses the receiver of the transferred property as having a remainder interest. If a customer creates a granny flat interest by:

• transferring the legal title of their home to another person, and
• getting a right to live there for life

The remainder interest is not an asset whilst the granny flat interest exists. This is because the person with the remainder interest did not create the remainder interest.

If a customer creates a granny flat interest by:

• transferring funds to another person who
• already owns a home, or
• purchases another property, and
• gets a right to live there for life

The remainder interest is an asset of the person who owns the property. This is because they have created the remainder interest by granting a life interest to the person with the granny flat right.

If the person with the remainder interest is also a customer and they do not live in the property, this remainder interest is not an exempt asset. The value of the remainder interest will be the market value of the property, less the value of the right to occupy. For the owner, the value of the right to occupy is determined by the Australian Government Actuary where the person is likely to be affected under the assets test.

See scenarios on Resources page for examples on how to assess.

There may be deprivation if an income support customer stops living in a granny flat interest:

• less than 5 years after creating the interest and,
• the reason they left would have been known at the time the interest was created

If both these criteria are met, deprivation is assessed from the date the customer permanently vacates the home until the end of the 5-year period from the date of transfer of the property.

For example, the customer gifts their home property on 1 July 2017 creating a granny flat interest. On 1 July 2018, they vacate the property to move to a unit they have recently purchased. This was their intention at the time they created the granny flat interest. The value of their contribution was not returned when they moved to the unit. Deprivation applies from 1 July 2018 to 30 June 2022.

If the customer is partnered and their partner still lives in the granny flat interest, no deprivation has occurred.

There is no deprivation in these cases:

• sudden onset of illness (including moving to Aged Care)
• family relationship breakdown
• elder abuse or
• damage to the property, which makes it uninhabitable

If the property is sold, the granny flat interest is not automatically ended. If the property is sold, the person who granted the granny flat interest can either:

• sell it, but make their right to live there a condition of sale
• transfer their granny flat interest to another property
• accept money or assets, in return for giving up their granny flat interest

Staff should note that deprivation may have occurred if:

• the property is sold within 5 years of the granny flat interest being established, and
• the customer's granny flat interest is ended,

If this occurs, refer the case to a Complex Assessment Officer. See the Process page for further information.