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DATE OF ISSUE:  17 March 1992



The purpose of this instruction is to explain changes to the policy on rights to accommodation for life which are acquired for valuable consideration or retained on transfer of property.  These changes, announced in the 1990/91 Budget, bring treatment of "granny flat" occupants and others in line with the retirement village provisions of the VEA.  The instruction therefore outlines the policy in relation to acquired rights to accommodation for life.  It also details the test to be applied in deciding whether an amount paid is reasonable; and gives procedural steps for assessing cases affected by the new provisions.


2.Under the deeming provisions, persons establishing granny flat interests in private residences could have had interest deemed on the property they transferred to establish their right to accommodation.  This would have discouraged genuine arrangements for the provision of care to the infirm aged.

3.For this reason, from 22 August 1990, the establishment of a granny flat interest in a private residence is to be treated the same as an entry contribution to a retirement village.  Where the value of the property transferred is considered unreasonable the deprivation provisions will apply in respect of any excess amount.


4.Cases where the right to accommodation was arranged before 22 August 1990 continue to be assessed under the old provisions.  For these cases the full value of the property transferred is maintained as a deprived asset, the person is regarded as a non-homeowner and the higher assets limit applies.

Retirement Village Accommodation

5.Homeownership status of a retirement village resident depends on the "entry contribution" (defined in paragraph 6) paid to secure the right to live there.  The entry contribution is compared with the "extra allowable amount" which is the difference between the "homeowner" and "non-homeowner" assets limits ($79500).  This status then determines whether the amount of entry contribution paid is counted as an asset.  Examiners should note that the difference between the "homeowner" and "non-homeowner" assets limits changes with indexation of the assets test.  The amount which applied at the time of securing the right to accommodation is the relevant figure.

Definition of an "Entry Contribution"

6.An "entry contribution" is defined as including the amount or sum of all the amounts paid, or agreed to be paid, to obtain for the person the right to live in the retirement village.  It is usually the amount specified in the contractual agreement between the parties and may comprise a donation component plus a loan.  It does not include costs such as general service or maintenance fees which are payable on a regular basis.

Loan Component of an Entry Contribution

7.The entry contribution may take the form of an interest-free loan which permits the person who provides the loan to reside in the retirement village.  The interest free loan is refundable in full or in part and is generally rebated on an annual basis to a minimum refundable amount.  Interest is not to be deemed on such loans under the deeming provisions.


8.The retirement village provisions apply to private arrangements made on or after 22 August 1990 where rights toaccommodation for life are created.  Cases identified as incorrectly assessed under the old rules should be reassessed and arrears paid to 22 August 1990 or the date from which the old granny flat rule was applied, if later than 22 August 1990.

9.Where on or after 22 August 1990 a person creates a granny flat right, the value of the property transferred to establish that right will be counted as an entry contribution to a retirement village and will be used to determine homeownership status.

10.Because granny flat rights are usually family arrangements the amounts paid to secure them are not governed by the free market.  A test of reasonableness in relation to the price paid will therefore apply to identify cases of assets test avoidance.

How Granny Flat Rights Are Created

11.Generally, granny flat rights are created by:

a.transferring title in a principal home to a relative and retaining a right of occupancy for life; or

b.providing funds to construct a granny flat on a relative's property in which the pensioner has the right of occupancy for life; or

c.buying or helping to buy a property which will be registered in a relative's name but in which the pensioner has the right to reside for life.

12.It should be noted firstly, that the granny flat may be on the property of a friend rather than a relative.  The relationship of the granny flat "partner" to the pensioner is not to be specifically defined.  Secondly, granny flat arrangements may be informal, particularly within families, and not supported by a written contract.  A statement by the "provider" will be accepted as proof of the right to accommodation.

Transfer of Title and Continued Occupancy of Principal Home

13.Where a pensioner transfers the title of a principal home to a relative and retains a right to reside for life in the same property, it is likely to be accepted that the value of the property transferred to establish the right is reasonable.

14.If the property has been the pensioner's principal home for at least 20 years the value will be accepted as reasonable in all cases, irrespective of the value of the property.  A lesser period than 20 years may be accepted if the person has traditionally been a homeowner and lived in properties of similar value.

15.Where the person has only recently become a homeowner, ie within the last 5 years, and transfers the title while retaining the right of occupancy, it will be necessary to examine the facts of the case to decide whether the transaction is reasonable.

Value Of Property Transferred

16.The amount shown on the transfer documents as the value accepted for stamp duty purposes is the market value of the property.  If this is not available the Australian Valuation Office can provide a valuation.  The value of the property can then be compared with the "extra allowable amount" to determine the pensioner's homeowner status.

17.To illustrate this we can use the case of a pensioner who transfers a principal home in which he had lived for 25 years, and which is valued at $72000.

a.The value of the property transferred ($72000) is less than the extra allowable amount ($79500), so the person will be assessed as a non-homeowner and the higher allowable assets limit will apply.

b.The value of the property transferred will be counted as an asset and recorded on the PROPERTY field.  An indicator, eg PT = "property transferred", should be used.

c.Because of the length of time the pensioner had owned the house, deprivation provisions do not apply.

Pensioner Pays for Construction of Granny Flat

18.Where a pensioner pays for the construction of a granny flat or other extension to a relative's home in which he or she will have exclusive rights of occupancy, the amount will be accepted as reasonable if it equals the construction costs.  A copy of the building contract should be sighted to check the approximate costs.

19.In such cases the funds provided are treated as an "entry contribution" to a retirement village.

20.Where the amount paid by the pensioner exceeds the construction costs by more than 10% a test of reasonableness is applied to decide whether deprivation has occurred.  (See Paragraph 26).

Pensioner Buys a Property in Relative's Name

21.Where neither the pensioner's own home nor that of the caring relative is suitable for the purpose of granny flat accommodation the preferred option may be for the pensioner to buy a new home, registered in the relative's name but in which the pensioner has the right to reside for life.  The pensioner or pensioner couple may pay all or part of the property purchase price.

22.Again, the test of reasonableness is applied to decide whether deprivation has occurred.  Paragraphs 26 to 27 refer.

Victorian Ministry for Housing - Moveable Units

23.A scheme administered by the Victorian Ministry for Housing and Construction provides for the erection of a demountable granny flat in the grounds of the home of a relative or friend.  The property owner, not the client, may purchase or hire the unit.

24.The purchase price is approximately $28,000 after which a nominal (peppercorn) hire fee of $1 a year is charged.  When the unit is no longer required it is repurchased and removed by the Ministry for Housing and Construction.  Based on a means test applied by the Department of Housing and Construction, assets-tested clients would normally occupy purchased units.

25.Alternatively, the property owner, not the client, may hire the unit on a weekly rental basis, the rental fee being set at 20% of the maximum pension rate.

Assessing Whether An Amount Is Reasonable

26.The test to be applied to the value of the property transferred is a quasi-actuarial valuation of the life interest or right of occupancy.              Using a conversion factor taken from the table at paragraph 27, a "reasonable amount" is determined by multiplying the combined maximum married pension rate by the conversion factor.


27.The following table has been developed from Australian Life Tables published by the Australian Government Actuary.  For the sake of administrative convenience, however, we have used a common life expectancy factor for males and females of the same age.



              51              27.04              71              11.92

              52              26.18              72              11.31

              53              25.33              73              10.72

              54              24.48              74              10.15

              55              23.65              75              9.60

              56              22.82              76              9.07

              57              22.01              77              8.56

              58              21.21              78              8.06

              59              20.41              79              7.59

              60              19.63              80              7.14

              61              18.86              81              6.71

              62              18.10              82              6.30

              63              17.36              83              5.92

              64              16.62              84              5.55

              65              15.90              85              5.21

              66              15.20              86              4.89

              67              14.51              87              4.58

              68              13.84              88              4.30

              69              13.18              89              4.04

              70              12.54              90              3.79

28.The following case explains how the test is applied:-

A 75-year old veteran and his wife who is 69 years of age give their son and daughter-in-law $100,000 to build a granny flat onto their home. They have agreed that the parents will have no title to the property but will have a right of occupancy for life.  The contract price for construction of the flat is $80,000.  As the amount transferred ($100,000) is more than 10% higher than the construction costs (80,000) the reasonableness test is applied:

combined married rate pension  x  conversion factor

ie$13,078  x  13.18  (conversion factor for younger partner)

=  $172,368.04

As the funds transferred do not exceed the calculation above, the amount transferred is considered reasonable (no deprivation has occurred) and is assessed as if it were an entry contribution to a retirement village.

29.If, in the example given above, the pensioners had transferred $185,000 to their son (ie more than the "reasonable" amount calculated above), they would be held to have deprived themselves of $2631.96.  This amount is the difference between the amount transferred and the "reasonable" amount after taking the "allowed gift" limit ($10000) into account.

30.Examiners should note that in the case of a married couple, the life expectancy to be used is that of the younger partner.  The combined married pension rate (current at the time the right is established) is to be used regardless of whether the person is married or not.


31.Rent assistance may be paid to granny flat dwellers who pay less than the "extra allowable amount" to establish the right to accommodation and who pay rent as defined in the VEA.  The assessed "reasonable amount" is the relevant amount to be considered where this differs from the actual amount paid.  A statement from the provider of accommodation is sufficient to establish the amount of rent paid.


32.The allowance for property transfer is deliberately very generous in order to encourage families to provide care for aged relatives.  There is a risk however of attempts to avoid the assets test by establishing a granny flat right to the limit of the allowance and then immediately vacating the property.

33.It is therefore necessary to limit the ability of the pensioner to vacate the property at will and still have the value of the right of occupancy disregarded under the deprivation provisions.

34.Where a granny flat right is established on or after 22 August 1990 and the pensioner vacates the flat within five years of establishing the right, the circumstances of the case will determine whether the deprivation provisions should apply.

35.If it is considered that the reason for vacating the flat would have been anticipated, the value of the property transferredwill be held as a deprived asset for the remainder of the five-year period starting from the date the granny flat right was established

36.Although long waiting lists for nursing home placements make it difficult to accurately plan the future care of elderly relatives, an event such as admission to a nursing home should not be accepted automatically as an event which could not have been foreseen.  If the admission was evidently anticipated when the granny flat right was established, the normal two-year exemption period will apply before the amount transferred is held as a deprived asset.

37.Examiners should note that after the two-year period expires, deprivation applies for the remainder of the five-year period starting from the date the granny flat right was established.

38.Where the deprivation provisions are applied in respect of the value of property transferred to establish a granny flat right, a manual advice should be sent to the pensioner.  It should include details of how the amount maintained as a deprived asset was calculated.

39.If the pensioner requests that the decision be reviewed, the Senior Pensions Officer may direct that the case be referred to the Australian Government Actuary for an opinion as to the appropriateness of the value ascribed to the granny flat right.  Such enquiries should be addressed to:

The Australian Government Actuary

P O Box 178





March 1992