A granny flat is a type of special residence (section 12C(2)). This topic explains:
Act reference: SSAct section 12C(2) A residence is a special residence if the residence is...
The granny flat interest rules recognise family arrangements that provide support for elderly people. The rules do NOT have any tests of age or family relationship. The rules do NOT measure or put a value on the support provided to the elderly person.
The granny flat interest rules DO reduce the effect of the deprivation (gifting) rules where people transfer property or other assets to family members in return for a life interest or right to accommodation for life.
A life interest or right to accommodation for life IS a granny flat interest if:
Explanation: In the real estate industry a 'granny flat' is the name given to a self contained flat in someone's house. A granny flat interest may be in accommodation that is quite different from the real estate definition of a granny flat.
A person who is the owner (or part owner) of property does NOT have a granny flat interest. They have the right to live in the property because of their ownership.
There is no market for granny flat interests because they are private family arrangements. The value of a granny flat interest is GENERALLY the same as the amount paid for the interest. This means there is NO deprivation amount.
Example: The value of a granny flat interest is the amount paid (or value of assets transferred) if a person:
In particular cases, where there is a special reason, the Social Security Act allows a granny flat interest of be valued at a DIFFERENT amount than the amount paid. These particular cases are the EXCEPTION to the rule that the value is the amount paid. The different amount is called the REASONABLENESS TEST.
The REASONABLENESS TEST uses an approximation of actuarial values called the reasonable value conversion factors. The test is described in (22.214.171.124). SOME examples of cases where the reasonableness test is used are:
Explanation: Compare the value of the home and the reasonableness test amount. The value of the granny flat interest is the greater of the 2 amounts.
Explanation: Compare the cost of constructing the premises and the reasonableness test amount. The value of the granny flat interest is the greater of the 2 amounts.
Explanation: The value of the granny flat interest IS the reasonableness test amount.
The following are some examples of how the granny flat rules apply. These examples are not exhaustive, rather they illustrate how the policy works in some situations.
Example: A person buys property in their son's name worth $280,000 AND gives the son assets worth $100,000 in return for a life interest in the home (a total of $380,000). The reasonableness test amount is $310,000. The value of the granny flat interest is $310,000 (because this is greater than the $280,000 cost of the new home).
$380,000 MINUS $310,000 = $70,000
$70,000 IS a gift.
Example: A person sells their home and moves into a house already owned and occupied by a family member, paying for a right to accommodation for life. No construction is needed. The value of the granny flat interest is the amount paid UNLESS the amount paid is greater than the reasonableness test amount. Any amount greater than the reasonableness test amount IS a gift.
Act reference: SSAct section 1147(1D) For the purposes of paragraph…
Policy reference: SS Guide 4.1.6 Deprivation Related to Home & Accommodation Transfers, 4.1.7 Deprivation Related to Farm Transfers, 126.96.36.199 General Provisions for Special Residences, 188.8.131.52 Granny Flats - Reasonable Value Conversion Factors
Last reviewed: 3 December 2007