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Granny Flat Arrangements

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Last amended: 22 December 2010

    

VEA ?

Provisions Relating to Special Residences and Special Residents

Part IIIB, Division 11, Subdivision C VEA

VEA ? (go back)

Definition of a granny flat

    

A life interest or right to accommodation for life is a granny flat interest if:

  • the person provides valuable consideration for a life interest or right to accommodation for life; and
  • the life interest or right to accommodation for life is in a private residence that is to be the person's principal home.

Valuable consideration for a life interest may include transferring the title of the person's principal home to a family member in exchange for a right to accommodation for life. It may also include paying for a unit to be built at the rear of a family member's property. This contribution is considered the entry contribution for a granny flat interest. A granny flat interest may be in accommodation which is quite different from the real estate definition of a granny flat (a self contained flat in someone's house).

Granny flat interests are usually family arrangements to provide assistance for a pensioner. These arrangements are seldom covered by any contract or agreement, which is formalised in writing.

Certainty of granny flat right or interest

The absence of any contract or agreement formalised in writing can make it difficult to determine whether the pensioner does in fact have security of tenure in relation to their granny flat interest which will give them a right to accommodation for life. In cases where doubt exists, written documentation, for example, a letter signed by the family, may provide certainty that a granny flat interest has been created.


Assessment method for granny flat – transfer of title

    

The assessment method to apply where a pensioner transfers title of his or her principal home, together with additional assets, as a consideration for retaining a granny flat interest in the property, is as follows:

  • The value of the granny flat interest will be the total value of the assets transferred - up to the amount calculated as being reasonable.    
  • Where the value of assets transferred exceeds that which is calculated as being reasonable, any excess is assessed under the deprivation provisions.    
    More ?

    Deprivation Provisions

    Chapter 9.6

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Assessment method for granny flat – sale of principal home

For a person who sells their principal home and applies some or all of the funds to acquire a life interest in a granny flat, the following two separate assessments must be completed:

Incomplete transfer of property title

A person who retains full, or partial, title to their principal home does NOT have a granny flat interest. They have the right to continue to live in the property because of their ownership. For example, if a person retains the title to their principal home and moves into a small unit attached to the house, while family members live in the main part of the house, they have not acquired the right to live in the property in return for valuable consideration. As a result, they do not satisfy the granny flat test.

If a person retains the title to their former principal home, and moves into another property on a permanent basis, then they have not acquired a granny flat interest in their new home. The former principal home must therefore be included in the pension assessment as an assessable asset. If the person rents out their former principal home, then the rental income, less any expenses, is also assessable.

Multiple granny flat rights

Where a person sells a former home, and transfers the proceeds to a number of near relatives with the intention of living with each on a rotation basis, the value of the property transferred is compared with the amount assessed under the reasonableness test.

Where the amount assessed under the reasonableness test is...

Then...

not exceeded

exceeded

  • only one transfer is counted as the granny flat, and
  • all other transfers are counted under the deprivation provisions.    
    More ?

    Deprivation Provisions

    Chapter 9.6

    More ? (go back)

Note: It is generally the transfer which relates to the greatest period of residence which is counted as the granny flat right.

Application of reasonableness test

To ascertain whether or not the amount contributed for the rights to a granny flat can be considered reasonable, a reasonableness test must be applied.    

Relevance of reasonable amount

The amount of the contribution to a granny flat that is considered to be reasonable for a person is the amount to be treated as an entry contribution to that granny flat. This amount is then assessed according to the special residence assessment rules. Any amount of the contribution that exceeds the reasonable amount is assessed according to the deprivation provisions.    

More ?

Special Residence – Basic Assessment Rules

9.2.5/Special Residence – Basic Assessment Rules

Deprivation Provisions

Chapter 9.6

More ? (go back)

Vacation of granny flat

When a granny flat is vacated within five years, it must be determined if the deprivation provisions should apply.    


A right to accommodation for life provides a right to security of tenure. It enables a person to continue to live in a property that they regard as their principal home, on an ongoing and permanent basis, until they die or choose to leave. This right is distinct from, and does not require, a share of legal ownership of the property, and may arise from arrangements such as a granny flat agreement or through a will.

A right to accommodation for life provides a right to security of tenure. It enables a person to continue to live in a property that they regard as their principal home, on an ongoing and permanent basis, until they die or choose to leave. This right is distinct from, and does not require, a share of legal ownership of the property, and may arise from arrangements such as a granny flat agreement or through a will.

A granny flat interest exists if a person has established a right to accommodation for life, or a life interest in another person's private home.

Granny flat interests are established by the following methods:

  • transferring title of the pensioner's principal home to a relative and retaining a right of occupancy for life;
  • providing funds for the construction of a granny flat in which the pensioner has a right to reside for life on a relative's property;
  • providing some or all of the purchase price of a property which will usually be registered in a relative's name but in which the pensioner has a right to reside for life; or
  • the terms of an estate.

Refer to Section 5MA(2) of the VEA for the full definition.

 

 

The principal home has the meaning given by subsection 5LA(1) of the VEA and subsection 5LA(2) of the VEA. The principal home of a person is generally the place in which they reside. In certain circumstances, however, the principal home of a person can be the place in which they formerly resided. The following property is regarded as part of the principal home.

  • the residence itself (e.g. house, flat, caravan),
  • permanent fixtures (e.g. stoves, built-in heaters, dish-washers, light fittings and affixed carpets),
  • [glossary:curtilage:DEF/Curtilage] (i.e. two hectares or less of private land around the home where the private land use test has been satisfied, or all land held on the same title as the person's principal home where the extended land use test has been satisfied), or
  •       any garage, shed, tennis court or swimming pool used primarily for private purposes provided it is on the same title as the principal home.

 

 

A person is a homeowner if he or she has a right or interest, which gives reasonable security of tenure in the principal home. A person is also considered to be a homeowner if they have sold their home in the previous 12 months and intend to use part or all of the proceeds to purchase another home.

A test of reasonableness is applied to a granny flat entry contribution. The premise behind the reasonableness test is that in some circumstances the value of a lifetime accommodation interest may exceed the value of the principal home being transferred. The reasonableness test uses an approximation of actuarial values, based on life expectancy, to estimate the value to the person of the life accommodation interest.

 

 

A near relative includes:

  • a member of the immediate family;
  • a blood relative;
  • a relative by marriage; and
  • an adopted child.

An entry contribution is the amount paid or agreed to be paid by a person for the right to live in a:

  • retirement village; or
  • granny flat.

If a person lives in a home subject to a sale leaseback agreement, the entry contribution is the balance of the amount still to be paid by a buyer, at the date of a sale leaseback agreement.

According to subsection 5MC(2) of the VEA a special residence is:

  • a retirement village; or
  • a granny flat; or
  • a sale leaseback home.