Granny Flat Interest Rules
A granny flat interest is a type of special residence recognised under the Social Security Act.
A life interest or right to accommodation for life is a granny flat interest if:
· The person ‘pays’ for a life interest or right to accommodation for life; and
· The life interest or right to accommodation for life is in a private residence that is to be the person’s principal home.
Examples of granny flat interests include the traditional granny flat built behind or next to a residence, it can be part of a residence that is already occupied (with or without separate living areas and facilities) and it can be a stand alone home. In fact it even can be the person’s original home that is transferred to another person who is providing the life interest or right of accommodation for life.
The point is that a granny flat is not defined other than it is a life interest or right to accommodation for life and is in a private residence.
Note that if a person owns or is a part owner of a property, that person does not have a granny flat interest as that person has the right to live in the property because of ownership.
Interestingly the rules do not have any tests of age or family relationship. This means that a granny flat interest can be established even when there is no family relationship between the persons who are entering into an agreement.
The significance of the granny flat interest rules is that the amount paid to establish the life interest or right to accommodation for life is treated as an entry contribution. This means that if the amount is above the extra allowable amount (which is currently $203,000) than the amount paid is not assessable under the assets test and the person is assessed as a homeowner. If the amount is below the extra allowable amount than the amount paid is an assessable asset under the assets test and the person is assessed as a non homeowner and may be eligible for rent assistance.
So a person my can transfer the title of their home, or pay for construction and/or fit out of a premises or even purchase a property in another person’s name in return for a life interest or right to accommodation for life.
The amount paid for the granny flat interest is assumed to be the value of the granny flat interest as a general rule. This means that gifting rules and deprivation rules will not apply.
The only situation where this is not the case is where the amount transferred is more than the cost of the construction of the premises for example.
In this situation a ‘reasonableness test’ is applied. The reasonableness test is a calculation using the combined annual partners pension rate multiplied by a conversion factor. The conversion factor is based on a person’s age. So the younger the person is, the larger the amount that is considered reasonable for the life interest or right to accommodation for life.
A person may pay for more than one life interest or right to accommodation if the total amount paid is not more than the reasonableness test amount.
If a person stops living in a granny flat interest property less than 5 years after creating the interest and the reason they left would have been anticipated at the time the interest was created the deprivation rules apply.
Please be aware that this is just a snapshot of the information available on this subject and you should not make any decisions based on this article without seeking further advice about your individual circumstances.