Dual Occupancy Situations

Last updated 1 November 2012

Definition of dual occupancy

Dual occupancy residential development is a residential housing scheme approved by some planning authorities which allows the construction of a detached dwelling on a large block of land where a residence already exists. Under this type of residential development the title to the land is not altered. A dwelling can be regarded as a dual occupancy dwelling if the land title on which it is located cannot be subdivided.

Assessment of a dual occupancy

The rationale for the favourable assessment (exemption) of a dual occupancy is that the second dwelling is only assessable if it cannot be regarded as a part of the person's principal home.  This requires an investigation into whether the second dwelling is available for the pensioner to use and occupy as part of their domestic living arrangements.

The following table demonstrates how to assess a second dwelling that has been constructed at the pensioner's expense on their land under a dual occupancy residential development:    

Letting the second dwelling

Where the second dwelling is let to a near relative, this does not necessarily preclude it from continuing to be part of the person's principal home. For example, a grandchild may live in the second dwelling, so that the pensioner can provide them with emotional support, or so that the pensioner can receive practical assistance with household tasks as they age. The pensioner would be able to access and use their second dwelling as if it were a part of their principal home, because of the close connection with their grandchild. Any rental income received in this situation is regarded as being similar in nature to board and lodging received from a family member and is not assessable under the income test.     

Where the second dwelling is let to a person other than a near relative, then the second dwelling becomes a completely separate residence due to the commercial arrangement between the homeowner and the tenant. As a result, the second dwelling becomes an assessable asset, and any income received from rent is assessable under the income test.     

Construction expenses met by a person other than the pensioner

If another person meets the construction expenses and that person obtains equitable rights in the second dwelling, the second dwelling is not considered to be part of the pensioner's property. This is because the pensioner no longer has reasonable security of tenure in the second dwelling. The pensioner is assessed using the Homeowner's Basic Assessment Rules.   

Potential subdivision of the second dwelling

If a pensioner builds a second dwelling on their property with the intention of subdividing and selling it, then the second dwelling cannot be regarded as part of the pensioner's principal home. Requesting evidence of planning constraints, such as whether it will be possible to subdivide the property, will assist a delegate to be reasonably satisfied whether the second dwelling is a dual occupancy dwelling or not.

If a delegate is reasonably satisfied that the second dwelling will not form part of the pensioner's principal home, it must be regarded as an assessable asset. Progressive valuations by the Australian Valuation Office are not necessary during the construction process, as other valuation methods which allow a reasonable asset value to be determined are available.     

Only where  it is not feasible to determine an asset value during the construction period, should the valuation be deferred. On completion, the market value of the property should be obtained and included in the pension assessment.