Examples of granny flat interests

We’ve put together some common examples to help you understand how we assess granny flats. These examples don't cover every situation.

If you live in your own home but transfer ownership

Mary will be turning 70 years of age. She lives in her own home valued at $400,000. To secure her home for her daughter’s inheritance, Mary transferred the ownership of the home to her daughter Isabella. In return Mary’s daughter agreed to provide her with the right to live in the house for the rest of her life. This means she has a right to accommodation for life.

Mary only transferred the home without transferring any extra assets to create a granny flat interest. For Social Security purposes, we don’t consider this as a gift.

We assessed Mary as a homeowner because the value of the home she transferred is more than the extra allowable amount. This is the difference between the homeowner and non-homeowner assets test limits. This means the value of her granny flat interest isn’t an assessable asset.

If Mary made payments to her daughter to help cover living costs, she wouldn’t be eligible for Rent Assistance. This is because we assessed her as a homeowner.

If you sell your home and build a granny flat on another property

Yu Yan and Wang Shu have both reached pension age. They sold their home for $400,000. They paid $152,000 to build a granny flat on their son Fei Hong’s property in return for a right to accommodation for life.

They only paid for the construction of the granny flat and didn’t transfer any extra assets. Yu Yan and Wang Shu agreed to pay $150 per week to Fei Hong to cover costs, such as electricity and gas.

As Yu Yan and Wang Shu didn’t transfer any extra assets, for Social Security purposes we don’t consider that any gifting occurred. We’ll consider Yu Yan and Wang Shu to be non-homeowners because the amount they transferred was less than the extra allowable amount. This means the $152,000 they’ve paid for their granny flat interest is an assessable asset. They’re now subject to the non-homeowner asset test, which provides a higher asset limit.

They may also be eligible for Rent Assistance for the regular payments of $150 per week they’re making to Fei Hong.

If you sell your home to buy a shared home with a family member

Jim and Joan have both reached pension age. They live in a home on a large block that they were struggling to maintain. They decide to sell their home and buy a 6 bedroom home in their son, Isaac’s name. The home can accommodate themselves and Isacc’s family.

Jim and Joan sell their home on 8 July 2017 for $800,000. They purchase the new home on 15 July 2017 for $600,000. They also transfer the extra $200,000 to Isaac.

Jim and Joan have a written granny flat arrangement with Isaac.

As Jim and Joan transferred the extra $200,000, we do a calculation to work out both:

  • if the amount transferred is reasonable
  • if any gifting has occurred.

We use a reasonableness test to calculate this.

The reasonableness test is a formula used in certain circumstances. It determines the acceptable value of the granny flat interest for Social Security purposes at the date of the transfer. Jim and Joan purchased the new home in their son’s name on 15 July 2017. At this time, Jim was turning 70 on his next birthday and Joan was turning 71. The reasonableness test takes into account the younger person’s age in determining the value to apply.

If the reasonableness test amount is less than the total value of assets that Jim and Joan have transferred, we may assess the difference as a gift.

We deduct the disposal free area of up to $10,000 for that financial year from the gift. We assess the remainder as a financial asset for 5 years from the date of transfer being 15 July 2017.

The reasonableness test amount for Jim and Joan was $604,461.31. This was less than the total of $800,000 that they transferred. We assess the difference of $195,538.69 as a gift. However assuming they have not utilised any of their disposable free area, only $185,538.69 will be treated as a financial asset for 5 years.

We’ll also consider them to be homeowners. This is because the value of the granny flat interest created on 15 July 2017 was greater than the extra allowable amount. The extra allowable amount at the time of transfer was $203,000.

The value of their granny flat interest will be an exempt asset. They also won’t be eligible for Rent Assistance for any accommodation payments they may make to their son.

You can find the reasonable value conversion factors we use in the reasonableness test on the Department of Social Security website.

If you sell your home and transfer the money to a family member

Sophia and Mateo sold their home for $500,000. They transferred these funds to their daughter, Ava, in return for a right to accommodation for life in a unit owned by Ava.

To secure their interest, Sophia and Mateo drew up a granny flat agreement with Ava. Under the terms of the agreement, Sophia, Mateo and Ava established a loan. Ava will repay the loan in specific circumstances. These circumstances are if Sophia and Mateo need to cancel the agreement because of any of the following:

  • ill-health and they needed to move to more suitable accommodation
  • a breakdown in their relationship with Ava
  • Ava sells the property
  • any of the parties die.

Because Ava is repaying the loan of $500,000 to Sophia and Mateo in specific circumstances, it is not considered to be a financial asset. This is because Sophia and Mateo used it to secure their granny flat interest.

As Sophia and Mateo transferred the $500,000 to Ava for a right to accommodation for life. Because of this, we did a reasonableness test to find out the value of the granny flat interest and to determine whether gifting has occurred.

At the transfer date of 22 September 2018, Mateo was turning 62 on his next birthday and Sophia was turning 61. The reasonableness test amount for Sophia and Mateo was $895,036.69. This is based on the younger person’s age, in this case Sophia. As the amount transferred was less than the reasonableness test amount, we don’t consider Sophia and Mateo to have made a gift. The value of the granny flat interest was the amount paid by Sophia and Mateo.

We’ll consider them as homeowners because the amount they transferred is more than the extra allowable amount.

We don’t assess the amount paid for their granny flat interest as an asset. They’ll also not be eligible for Rent Assistance if they’re paying Ava to help cover living costs.

You can find the reasonable value conversion factors we use in the reasonableness test on the Department of Social Security website.

Page last updated: 3 March 2022