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9.2.6 Reasonableness Test
In this section
This section demonstrates how the Reasonableness Test is used to determine how much of the amount contributed for the purchase or construction of a granny flat should be assessed as an entry contribution.
The amount considered to be an entry contribution is then assessed according to the Special Residence Basic Assessment Rules.
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.
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.
Refer to Section 52M of the VEA for the full definition.
According to subsection 5MC(2) of the VEA a special residence is:
- a retirement village; or
- a granny flat; or
- a sale leaseback home.