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9.6.8 Deprivation Related to Home and Accommodation Transfers

Document
Last amended 
2 September 2015
Failure to receive adequate financial consideration

Deprivation is assessed if a pensioner does not receive adequate financial consideration and:

 
Right to accommodation for life   

If the person acquires the right to accommodation for life in the property, this may be accepted as adequate consideration. However, this is not automatic. The person must establish that through disposing of the asset they have created a granny flat interest in the property, by exchanging financial consideration for the right to accommodation for life. The reasonableness test is then used to determine whether the value of the granny flat interest can be regarded as adequate consideration.    

 

In some cases there may be doubt about whether a granny flat interest has been established and whether the pensioner has security of tenure in their home after a transfer of title. Where doubt exists, there may be value in requesting that a family provide some form of written documentation. This could take the form of a letter signed by family members that certifies that a right to accommodation for life has been established.

 
Granny flat right created

If a person creates a granny flat right after 22 August 1990, the value of the property transferred to establish that right will be counted as an entry contribution to a retirement village. A reasonableness test will apply to determine whether deprivation provisions will apply.    

More →

 

General Provisions of Deprivation

Section 9.6.2

 

More → (go back)

 

Farm transferred but life interest retained in dwelling
VEA →

 

Retirement Assistance for Farmers Scheme (RAFS)

Section 49B(2) VEA

 

Retirement Assistance for Sugarcane Farmers Scheme (RASFS)

Section 49R(5) VEA

 

VEA → (go back)

 

When a person transfers a farm but retains a life interest in a dwelling, the dwelling is not considered deprivation, but rather the principal home, which is an exempt asset. The gifted farm is a deprived asset unless it meets certain criteria under:

 
Disposal of rental income   

If a person owns a property and allows people (other than family members) to occupy the property with no or low rent being paid, then disposal of income has occurred, as there has not been adequate financial consideration, and the actions have made the income less than it could have been.

Disposal of income does not apply where a person has entered residential aged care, and is paying a daily accommodation payment or a daily accommodation contribution , an accommodation charge or an accommodation bond by periodic payments, and is renting out their former residence.    

In order for the amount of disposition to be determined, investigation is necessary to ascertain what would be a reasonable amount of rental considering the age, location and condition of the property, as well as the property market in the area. This amount may then be reduced by 1/3. This is because 1/3 of the rental income earned can be accepted as being used for expenses associated with maintaining the property as a rental property, making it exempt from assessment. The deprived income amount can also be reduced by any valuable consideration that a pensioner may receive from work undertaken by the tenants which increases the asset value of the property.    

 

Rent-free tenancy by family members

Deprived rental income is not to be found where a pensioner's real estate property is occupied on a rent-free (or low rent) basis by a family member. The Repatriation Commission decided on 6 February 2007 that disposal of rental income does not arise where the following conditions are satisfied:

  • the tenant enjoying rent-free (or low-rent) occupancy is a family member, being the partner, parent, brother or sister, or child of the pensioner; and
  • the property is being used for residential occupancy only. Where a pensioner's property is being used for commercial purposes, including by family members, the income disposal rules will still apply. The commercial market rent amount is to be obtained from a qualified valuation service provider and held in the pension assessment in these cases.
 
Example of disposal of rental income

A person owns three houses, one of which he lives in. His friends occupy the other two with no rent being paid. It has been estimated that the properties could earn approximately $360 per week. The purpose of this arrangement is to enable his friends to save a deposit to purchase the homes from him. As the person has not received any financial consideration and has undertaken a course of conduct that diminishes his ordinary income, the person has disposed of income.

 
Granny flat provisions may apply

Granny flat provisions apply if the pensioner retains the right to occupancy in the home for life or acquires a life interest in the home.    

 

Transfer of property for annuity

Deprivation provisions may apply if a pensioner transfers property to a relative in exchange for a certain amount per year for life in the form of an annuity. The value of the annuity is treated as consideration. An Australian Government Actuary valuation is required for annuities. If the value of the annuity is below the value of the property, deprivation of assets may have occurred.    

For adequate financial consideration to be received when disposing of an asset, a person must receive value in the form of money or assets. Adequate financial consideration can be accepted when the amounts received reasonably equate to the market value of the asset. It may be necessary to obtain a valuation from a property valuation service provider.

When disposing of income, in order for adequate financial consideration to be received, the person must receive money, goods or services which approximate in value to the rate of disposed income. If a person disposes of an income producing asset and receives adequate financial consideration in money or money's worth for the asset, then it can be accepted that they have received adequate financial consideration for the disposal of both the income and the asset.

 

 

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 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.

An asset means any property, including property outside Australia.

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.

 

 

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.

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.

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.

 

 

When making a decision whether a course of conduct warrants application of the deprivation provisions, reference should be made to section 48 of the VEA in relation to income and section 52E of the VEA in respect of assets.

 

 

According to section 5L of the VEA a family member, in relation to a person, means:

  • the partner, father or mother of the person, or
  • a sister, brother or child of the person, or
  • another person who, in the Commission's opinion, should be treated as one of these relations for the purposes of this definition.

Please note, the definition of a parent is further defined in section 10A of the VEA.  

Disposal of income refers to a course of action that either destroys, disposes or diminishes income or a source of income, without receiving something of equivalent value for the income source forgone, for the purposes of obtaining an income support payment advantage.

See section 48 VEA, also refer to income support payment.

 

 

A payment for accommodation costs worked out by converting the refundable accommodation deposit (RAD) to a daily amount, which is payable as a periodic amount by aged care residents.

A payment for accommodation that accrues daily and is payable as a periodic amount by aged care residents for whom the Government is also making a contribution.

According to section 5L of the VEA a family member, in relation to a person, means:

  • the partner, father or mother of the person, or
  • a sister, brother or child of the person, or
  • another person who, in the Commission's opinion, should be treated as one of these relations for the purposes of this definition.

Please note, the definition of a parent is further defined in section 10A of the VEA.  

A life interest arises when a pensioner:

  •       acquires the right to use assets or the income produced by those assets, or
  •       transfers a non-exempt asset to another person, but retains an interest in the asset, or
  •       is created by the will of a deceased individual.

A life interest remains current until the pensioner:

  •       dies,
  •       sells the asset, or
  •       formally surrenders the asset.