Granny Flat

What is a Granny Flat?

Sometimes living alone may not be the best option and you may wish to move in with your children or another close relative/friend, or you may wish to reassign ownership of your home. The arrangements can be either formal or informal and you receive the right to accommodation for life.

This might involve you moving into someone else's home or into a granny flat built on their property. Alternatively you can transfer ownership of your home to that person and continue to live in the home.

This arrangement may involve a gift of money, payment of expenses or transfer of the title of your home.

Normally the transfer of money or assets would come under Centrelink/Veterans' Affairs (DVA) gifting rules. But the granny flat rules determine how this transfer is assessed and the interaction with gifting rules.

Who is this Suitable for?

This strategy is suitable for a person who:

• Wishes to transfer money or assets to children or other relatives (in return for the right to accommodation for life) as part of estate planning
• Wants to be cared for by someone close to you, rather than move into an aged care facility

Receives a Centrelink/DVA payment and wishes to transfer money or assets to children or other relatives to increase entitlements and also receive the right to accommodation for life

How does this work?

Granny flat rights can be created in several ways:

• You transfer the title of your home to another person who moves into the home to live with you. You retain the right to also live there for life. The transfer must be legally registered, and you must transfer full ownership of the home. If you only transfer part of the home normal gifting rules apply
• You provide money to construct a granny flat (unit) on another person's property, and receive the right to live there for life
• You provide all or part of the purchase price of a property which is owned by another person, and receive the right to live there for life

How are Granny Flat Rights Assessed by Centrelink/DVA?

You should discuss your individual circumstances with your local Centrelink/DVA office before taking any action to determine how you will be assessed.

If you pay money that equals the purchase or construction costs or you transfer full ownership of your home, this is deemed to be a ‘reasonable amount'. Gifting rules do not apply.

If you transfer additional amounts/assets, Centrelink/DVA will determine the ‘reasonable amount' for the granny flat right using a formula with a conversion factor based on your age and the maximum rate of age pension (couple rate). Any amount paid or transferred over this reasonable amount is a gift and is assessed under deprivation rules.

Deprivation applies if the amount deemed to be a gift (single or couple combined) is more than:

• $10,000 per financial year, or
• $30,000 over a five-year rolling period (includes current financial year and the four previous financial years)

Deprived assets are assessed against the income and assets tests for the next five years and may have a negative impact on your Centrelink/DVA entitlements.

If you move out of the granny flat within five years and the reason that you moved could have been anticipated at the time the right was established, gifting rules may be applied retrospectively.

Some details to be aware of include:

• For Centrelink/DVA purposes, granny flat rights do not need to be written agreements however Centrelink/DVA may request a statement that the arrangement has begun
• The amount paid or transferred for the granny flat right is an exempt asset (except deprived asset amounts) and you are assessed as a homeowner if the amount paid is above the extra allowable amount of $252,000. If you pay $252,000 or less, you are treated as a non-homeowner and the amount paid is an assessable asset

If you are transferring ownership of your home Centrelink/DVA may use the value accepted for stamp duty or may choose to receive a valuation from the Australian Valuation Office

If you have paid money for construction of the granny flat, you need to provide a copy of the building contract to Centrelink/DVA to verify the construction cost

What should I be thinking about?

Granny flat arrangements may not work out. You may wish to formalise the arrangement to protect yourself by having a solicitor draw up an agreement and identify any other details. This agreement may include:

• The quality and type of the accommodation to be provided
• Whether the accommodation is in a particular property or in any property
• How the granny flat right can be dissolved if the arrangement is no longer suitable

You should also ask your solicitor to review and formalise your estate planning arrangements such as your Will and Powers of Attorney.

The value of the granny flat can be a significant proportion of your estate, so it is important to prevent potential rifts between family members. You may find it difficult to get your money back if you no longer want to live in the granny flat.

This information is of a general nature. It does not consider your personal objectives, needs or situation. It does not represent legal, tax or personal advice and should not be taken as such. If it has been provided to you with a Statement of Advice (SoA), you should rely on the personal advice in the SoA.

Care has been taken to provide up to date and accurate information relating to the subject area however BR Advice Pty Ltd (ABN 30 612 056 523, AFSL 488655), Blue Rock Private Wealth Pty Ltd (ABN 95 166 927 055, AFSL 452733), and their representatives make no representation as to its accuracy or completeness.

Published: July 2024.

© Copyright 2024.