How Will Centrelink’s “Granny Flat Rules” Affect YOU? posted on the 29th August 2018

Looking at options to house parents or family members? Confused by which rules might apply to your situation?  Have a read below…

Using Centrelink’s ‘granny flat’ rules to house ageing parents

George Cochrane, The Sydney Morning Herald

5 August 2018

I have a house that is currently rented out and we plan to move there in two years. Neither of my parents have superannuation and we have invited them to live with us. They will be selling their home, which would give them about $350,000 profit. They hope to give us $200,000 to be used to renovate or rebuild so they can be accommodated. They are aware of the rules of gifting and their aim is to contribute without affecting their pensions. They are aged 66 and 75. T.M.

You might find Centrelink’s “granny flat rules” helpful as they allow pensioners to contribute more than the usual gifting limits of $10,000 a year and up to $30,000 over a five-year period.

In a nutshell, those gifting rules do not apply if a person, or a couple, transfer the title of their home to someone else, or buy a property in another person’s name, or pay to build a flat or addition onto another person’s property and, in return, receive a life interest or a life tenancy in that property, which will be the donor’s principal residence. The rules are not concerned with age or family relationship.

However, when extra amounts over the cost of transfer or construction are transferred, Centrelink applies a “reasonableness test”, which permits the maximum amount that can be transferred, covering both the transfer cost plus the additional amount.

This “reasonable value” is found by multiplying the maximum annual couples’ pension (currently $35,573.30 until indexed up in September 2019), even if a single person is involved, multiplied by a conversion factor (which you can Google).

For example, if you moved into your parents’ house, and they transferred the title of their house (which means you would pay stamp duty) in exchange for a life interest in the house, with no additional assets, no amount is treated as a gift. Note however, that the deprivation rules might apply if they leave within five years and the reason they left could have been anticipated.

But if they contribute $350,000 to build a self-contained flat on your home and pay, say, another $100,000 cash on top in exchange for a life tenancy in the unit, then the “reasonableness test” is triggered. If we assume the youngest parent’s next birthday is 67, the conversion factor is 19.8, which results in a reasonable value of ($35,573.20 x 19.8 =) $704,349. In this case the reasonable value is not exceeded.

Your parents, as pensioners, might pay for more than one life interest (if you have siblings) and, if the total amount paid is no more than the reasonableness test amount, no amount is treated as a gift.

It gets more complex when deciding whether a person (or a couple) in a granny flat is a homeowner or not, for the purposes of the assets test. If the price paid (the “entry contribution”) is greater than the difference between the age pension’s homeowners’ and non-homeowners’ assets test thresholds (currently $207,000 and known as the “extra allowable amount”) then the granny flat residents are homeowners, otherwise they are treated as non-homeowners.

Tell your parents to make an appointment with a Financial Investment Service to discuss how they can best use the granny flat rules.

Needing further advice about your Granny Flat project?


Call Sonia Woolley

0403 309 136

Written by Sonia Woolley

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