And no, we aren’t just talking about building a self-contained unit on your child’s land which is what people usually think about when we say granny flat.
This could involve buying a bigger house for you all to move into, or building a self-contained unit on your child’s land. Or even giving your kids a lump sum and living in a bedroom on their property.
This is what we call a granny flat interest at Services Australia.
Interestingly, terms specifically relating to granny flat builders and dual occupancy builders skyrocketed on Google search by more than 40% and 120% respectively over the last year.*
What is a granny flat interest?
A granny flat interest or right is where you pay for the right to live in a specific home for the rest of your life. You can’t have a granny flat interest in a property you legally own.
How you create the granny flat interest will determine whether we consider you a home owner.
It also determines whether we include the value of that interest in your assets test.
These factors can affect your eligibility for a pension and how much pension you can get.
A granny flat interest can also have significant implications for your possible aged care needs and your estate.
Now that may sound like a lot to get your head around, so if you’re contemplating creating a granny flat interest we recommend you get financial and legal advice.
Four granny flat exemptions
There are four ways of creating a granny flat interest where the transfer of the asset will always be considered reasonable, regardless of the value of the asset.
The four options to be aware of are:
- The first means of creating a granny flay interest without triggering the test of reasonableness is if you transfer 100% of your own home to another person, and in exchange they let you live in it, or they guarantee somewhere else for you to live. This might be helpful if you don’t want to move, but you can’t afford or don’t wish to manage the house finances anymore. You get to stay in the home and the other person can manage the costs knowing the house is theirs and they are looking after their own property.
- The second option is paying to build a self-contained unit on someone else’s property. There are no limits on how much you spend on the construction of the self-contained unit. Sure, you could buy the solid gold toilet seats, but would you really want to?
- Similar to that, the third option is to pay for the modification of someone else’s property so it becomes suitable for you to live in. Although the property remains in their name, they give you the right to live there for your life. Just like building a self-contained unit, there are no restrictions on how much you choose to spend on the modifications.
- The last alternative is if you sell your home, and then use the funds to buy a property in someone else’s name. Again, in exchange, they give you the right to live in the new property for life. You can either pay for the new property on your own, or buy it jointly with the other party, but you can’t have your name on the title deed, because if you do and have a legal right to live in the house through some form of ownership, it can’t be a granny flat interest.
It’s important to note that if you transfer additional funds to another person for a granny flat interest on top of any of the above four options - Services Australia will assess the whole value, that is, the cost of the option plus extras, under the reasonableness test. If the total value exceeds what is considered to be reasonable then the gifting rules may apply - meaning it could impact your pension.
A word of warning
If you’re looking at a granny flat arrangement, it can have big implications for you and the family.
Assuming it’s not all flowers and singing birds in your retirement, like if there’s a relationship breakdown, it could be a good idea to have an ‘escape clause’ in writing to protect yourself.
If your head is spinning from all this information, remember that you can talk it through with Services Australia’s free Financial Information Service.
Call us on 132 300 and say ‘Financial Information Service’ when asked for the reason for your call.
Speak to FIS before you make any decisions to understand all the implications.
*Google search trends data sourced from 23 January 2026.
Originally published by Yahoo Finance on 25 February 2026.