9.6.8 Deprivation Related to Home and Accommodation Transfers
Failure to receive adequate financial consideration
Deprivation is assessed if a pensioner does not receive adequate financial consideration and:
- transfers the legal title of their principal home to another person, or
- reduces their interest in their principal home by adding other names to the title, or
- buys a new principal home in another person's name.
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.
Farm transferred but life interest retained in dwelling
Retirement Assistance for Farmers Scheme (RAFS)
Retirement Assistance for Sugarcane Farmers Scheme (RASFS)
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:
- the Retirement Assistance for Farmers Scheme (15/9/97-13/6/01), or
- the Retirement Assistance for Sugarcane Farmers Scheme (13/7/04-13/7/07), or
- the forgone wages rule, or
- the granny flat rules.
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.
Source URL: https://clik.dva.gov.au/compensation-and-support-policy-library/part-9-principles-determining-pension-rate/96-deprivation-income-and-assets/968-deprivation-related-home-and-accommodation-transfers