GRANNY FLAT AGREEMENTS
A granny flat agreement is where you pay for the right to live in a specific home, for life.
A granny flat interest is created when you exchange ownership of your home, but keep a right to live there for life, or, you pay money to another person, for the right to live in their property, for life.
It does not have to be a ‘granny flat’ that is a separate building at the bottom of the garden – it can be all or part of a residence, a flat under a house, your former principal home or a ‘granny flat’.
If you are receiving a pension, you need to be aware of how the granny flat agreement could affect your pension.
We can assist you to properly document a granny flat agreement to ensure it complies with the Centrelink provisions (if applicable) and to ensure your interests are properly protected.
A granny flat interest is an agreement where you pay for the right to live in a specific home, for life.
If you and the person you are paying are not receiving any Centrelink benefits, and are unlikely to receive any Centrelink benefits in the next five years, you are not restricted by the Centrelink rules and gifting provisions.
If you are receiving a pension, however, the granny flat agreement must comply with the various Centrelink rules.
Centrelink will assess the granny flat interest and determine whether it affects your payments, based on the amount you transferred to pay for the granny flat interest.
No, the property cannot be owned by you, your partner, or a trust or company you control.
You cannot be a joint tenant or tenant in common on the title.
If you leave the property within 5 years, Centrelink will review the granny flat interest.
If you leave the property because of an unexpected reason (such as sudden illness, family relationship breakdown of elder abuse), the gifting provisions are unlikely to apply.
The owner of the property cannot take away your granny flat interest.
If the owner sells the property, they must transfer your granny flat interest to another property or give you money or assets as compensation for giving up your granny flat interest.
Services Australia (Centrelink) has published some common examples of granny flat interests and how they are assessed by Centrelink: https://www.servicesaustralia.gov.au/examples-granny-flat-interests?context=22526
If you and the person you are paying are not receiving any Centrelink benefits, and are unlikely to receive any Centrelink benefits in the next five years, you are not restricted by the Centrelink rules and gifting provisions.
If you are receiving a pension, however, the granny flat agreement must comply with the various Centrelink rules.
Centrelink will assess the granny flat interest and determine whether it affects your payments, based on the amount you transferred to pay for the granny flat interest.
- you are transferring the title of your home but keeping a lifetime interest to live there (or subsequent property)
- you are paying to build a granny flat on someone else’s property
- you are converting or renovating someone else’s home to suit your needs and receiving a lifetime right to live in the home
- you are buying a property in someone else’s name and receiving a lifetime right to live there.
Centrelink will apply the reasonableness test if you have transferred assets, in addition to your home, or made a lump sum contribution towards someone’s existing property where no construction or renovation has occurred.
If you pay more than the cost or value of your granny flat interest, the extra amount is considered a ‘deprived asset’ and is treated like you have gifted the extra amount to the recipient. Centrelink have rules about how much you are allowed to gift, before it affects your pension.
Centrelink works out the value of the granny flat interest by using the reasonableness test.
The reasonableness test calculates the value of the granny flat interest, based on your age multiplied by the combined annual partnered rate.
We can provide an estimate of this amount but Centrelink or your financial planner can provide you with an accurate calculation of the value of the granny flat interest.
