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Balance Retirement & Aged Care Specialists

Granny Flat Financial Strategies

For some elderly people, they do need necessarily need residential aged care yet, however they may not be able to manage at home any more eg;

  • Can’t maintain the home any longer
  • Are lonely
  • Are too far away from family
  • Would be closer to family to provide child minding
  • Have basic/minimal care needs that could be provided by family

& therefore a granny flat may be the perfect solution, instead of a retirement village, or home care or residential aged care.

What is a Granny Flat ?

To most people a Granny Flat is selling your home & giving someone (usually a family member) all or some of the sale proceeds for them to build a granny flat, or modify the house to provide granny flat accommodation in their existing home, & have you move in with them.
HOWEVER, from a Centrelink perspective it is so much more, & can have spectacular benefits (if done correctly.

Normally if someone were to sell their home & buy another home of similar value there would be little or no impact on your pension entitlement. Although if you purchased a new home for smaller value & had money left over there could be a negative impact on your pension entitlement.

BUT, if you sell your home & don’t purchase another home, & give money to your family, then this particular gifting would have a major negative impact on your pension & it could be significantly reduced or lost completely. IF however you gifted the money as a “Granny Flat right” or a Granny Flat interest” then it would NOT have an impact on your pension at all, but the amount given MUST satisfy certain strict conditions & tight guidelines on order for it to not affect your pension.



So, what are the conditions;

  1. The person making the gift to the family MUST receive the right to occupy the granny flat (or some other property) for the rest of their lives, which MUST be in writing
  2. In some cases the gift must be within the Reasonableness Test limits
  3. If the granny flat is vacated by the person making the gift, then the Granny Flat right/interest can be overturned (ie the deprivation rules may once again apply, & the gift could be counted as an asset & deemed by Centrelink for 5 years).
  4. If the person making the gift later needs to move into aged care, then you may need to prove that it could NOT have reasonably be foreseen that the person needed care (this is an especially tricky area). It is imperative you get this correct before setting the granny flat right/interest in place.

Types of Granny Flats

It is not only about selling & building a granny flat. You can satisfy the granny flat right/interest, in other ways as well;

  1. Purchasing a Property in someone else’s name- & getting a right to occupy that dwelling or some other dwelling in return, for the rest of your life
  2. Transferring the ownership of your existing home into someone else’s name -& getting a right to occupy that dwelling or some other dwelling in return, for the rest of your life
  3. Giving cash or other assets- & getting a right to occupy that dwelling or some other dwelling in return, for the rest of your life.

There are several different ways of achieving the granny flat right benefits, & you should seek assistance in finding which method works better in your particular care.

Some of these options do not need to satisfy the “reasonable test”, it will depend on HOW you do it, & the value of the amount given versus the benefit derived.

Do I have to actually build a granny flat?

NO As mentioned above there are other ways of transferring assets to someone else & not falling foul of the Centrelink gifting/deprivation rules.

The tricks, traps & pitfalls?

Objective / Financial
Be careful to clearly define why you are doing this & what you want to get out of it to ensure you achieve the desired result, some folks hear about it from friends & rush into it quickly only to find they haven’t done it correctly & then miss out on the benefits.

Whilst you will need t get the granny flat in writing to satisfy the Centrelink requirements, it does not have to be a legal document. HOWEVER it is in everybody’s best interest to get the detail documented & have protection afforded to the person giving the gift, to ensure they cannot be disadvantaged later

Estate / Financial
In some circumstances giving money or assets to one member of the family for a granny flat right may disadvantage other family members from receiving an equal share of the inheritance. Consequently, seeking expert guidance about how to manage this delicate area, achieve the desired outcome, but not disadvantage other family members requires care planning.

If the granny flat right/interest is not established correctly, then you may well find the pension could be lost or significantly reduced, once again expertise in pensions may be needed to ensure you don’t lose your pension

Other issues of caution:

  • Land Tax
  • Stamp Duty
  • Capital Gains Tax (CGT)

What is the Centrelink benefit of a Granny Flat?

Smart use of the Granny Flat right/interest can allow you to sell your home, give assets away & not have your pension reduced or lost.

Gifting assets or money does not necessarily lose the pension, it is the use of the funds AFTER SELLING THE HOME that makes the difference.

    Contact Balance Aged Care Specialists in regards to Granny Flat Financial Advice