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Vacation of Granny Flat

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Last amended: 10 April 2012

Assessment of the vacation of a granny flat

If a person vacates a granny flat right within 5 years of the date of the right being established, the circumstances of the vacation of the property will determine whether or not the person is considered to have deprived themselves of an asset.    

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Granny flats and information on deprivation provisions

9.2.5/Granny Flat Arrangements

Chapter 9.1

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It is necessary to carefully examine the circumstances leading to the vacation of the granny flat within 5 years, rather than the timing of leaving the granny flat, to determine whether a genuine granny flat interest was entered into.  Circumstances may arise where a genuine intent to continue residing in the granny flat were affected by an unrelated event, for example the onset of illness or a fall, which required aged care entry or a change of residence.  In these situations the need to vacate the granny flat interest within the 5 year period could not be foreseen, and deprivation should not be found.

Where the granny flat is vacated after five years, deprivation does not arise as deprivation is not held beyond this time period.

When is the vacation of a granny flat considered deprivation?

When considering whether there was a genuine intent to remain in the granny flat interest, or that an event leading to the vacation of the granny flat within 5 years was unforeseen, the likelihood of the event that led to the vacation of the granny flat being known to the person at the time of entering into the granny flat agreement must be determined.  Consistent with the beneficial purpose behind the introduction of the granny flat provisions, deprivation should not be found in respect of early vacation of the granny flat, where there is no evidence providing a link between the event or change in circumstances, and the establishing of the granny flat interest.

However, where there is evidence that the early vacation of the granny flat was intended or was reasonably foreseen, the establishment of the granny flat interest was clearly not for the purpose of acquiring a lifetime accommodation interest.  In these cases, the granny flat agreement was for the purpose of deliberately reducing the assessable assets value of the person, and deprivation should be found.  Circumstances where early vacation of the granny flat may be regarded as foreseen include, but are not limited to:

  • booking an aged care place at the time of establishing the granny flat interest,
  • undertaking an ACAT assessment at or around the same time as entering into the granny flat interest (An early ACAT assessment may however be disregarded if a discrete event, such as the onset of illness or a fall, has occurred),
  • not taking up the stated intention of residency in the granny flat, for example following a period of construction,
  • where the circumstances of the granny flat interest do not permit genuine occupancy, such as other family members tenanting the residence, or
  • where there is other evidence, such as enquiries in relation to aged care assessment, occurring at or around the same time as the granny flat interest is notified.

The test in establishing whether there was genuine intent or whether early vacation of the granny flat was foreseeable is that of reasonable satisfaction, being that a statement or piece of evidence is more likely than not to be true.  Where a delegate is not reasonably satisfied about the reasons for early vacation of the granny flat interest, the deprivation of assets provisions should apply from the date of vacation of the granny flat.    

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Granny flats and information on deprivation provisions

9.2.5/Granny Flat Arrangements

Chapter 9.1

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Calculation of the deprivation amount on early vacation of the granny flat

    

VEA ?

Amount of disposition - Section 52F VEA

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The asset disposal provisions in the VEA provide that consideration received by the person in return for the transferred asset is deducted from the transferred asset value, when determining the asset disposal amount.

Where a granny flat resident voluntarily vacates their granny flat interest, their actual period of occupancy from the date that the granny flat interest was established, to the date of vacation, represents a partial enjoyment of their right to accommodation for life, and may be regarded as partial consideration for the transferred asset value.  The period of occupancy is compared to the person's life expectancy, to determine the amount of partial consideration received in return for the transferred asset value.

Example:

A person establishes a granny flat interest by transferring a property valued at $400,000 to family members, in return for the right to accommodation for life in the property.  At the time of creating the granny flat interest, the person was 80 years old.  His life expectancy is 9.2 years.     

The person voluntarily vacates the granny flat interest early, after 4 years.  This period of occupancy, representing 43.48% of the person's actuarial life expectancy, is partial consideration for the transferred asset value.  The disposal amount is 56.52% of $400,000 = $226,080.

Where the granny flat is vacated after five years, no deprivation is held regardless of the person's life expectancy at the time that the granny flat interest was established.  Deprivation is not held beyond this time period.


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.