A granny flat interest is an agreement for accommodation for life. It can affect your eligibility or rate of payment and we may include it in your assets test.
What a granny flat interest is
A granny flat interest or right is where you pay for the right to live in a specific home for life. The property must belong to someone else. It's not a description of the type of property. We may also call it a granny flat right. It must be:
- all or part of a private residence
- your principal home
- not owned by you, your partner or a trust or company you control.
The right only lasts for your lifetime. It's not part of your estate when you die.
Which homes can have granny flat interests
You can have a granny flat interest in any kind of property. It doesn't just apply to properties often referred to as granny flats.
Granny flat interests are usually family arrangements providing company and nearby help for older people. They don't have to be for social security purposes.
The interest may include:
- the same building as the owner of the home
- a separate, self-contained building on someone else's land.
You can't have a granny flat interest in a property you legally own. This includes property that you, your partner or a trust or company you control owns.
Creating a granny flat interest
We recommend you get financial and legal advice before you create a granny flat interest.
You create a granny flat interest when you exchange assets, money or both for a right to live in someone's property for life.
For example, you could transfer:
- ownership of your home but keep a lifelong right to live there or in another private property
- assets, including money, in return for a lifelong right to live in a property.
There are 2 ways to have a granny flat interest, either:
- life tenancy – the right to live in the property
- life interest – the right to use and benefit from the property as you wish.
With both kinds you need to be living there.
Proving your granny flat interest
We may accept that you have a granny flat interest even if it's not in writing. However, we recommend you get a legal document drawn up so there's proof of what you agreed to. This can help prevent problems later if things change.
The document should:
- confirm your right to live in the home for life
- say if you've agreed to pay rent or look after any upkeep of the property
- say how the owner will compensate you if they want you to give up your granny flat interest.
Before you create a granny flat interest, call us on your regular payment line. We'll discuss how it could affect your payments.
How we assess granny flat interests
How you create the interest will determine whether we consider you a homeowner. How you created it also determines whether we include the value of the interest in your assets test. These factors affect your eligibility for payments and how much you can get.
You need to tell us how much you transferred or paid to the owner for your granny flat interest. We use this to assess whether you're a homeowner. We also use this to see if you paid more than the granny flat interest is worth.
We use the amount you transferred or paid to the owner as the value of the granny flat interest.
We won't consider you to have paid more than the granny flat interest is worth if you're:
- transferring the title of your home and keeping a lifetime right to live there or in another property
- paying to build a granny flat on someone else's property
- paying to convert someone else's home to suit your needs and getting a lifetime right to live there
- buying a property in someone else's name and getting a lifetime right to live there.
We use the reasonableness test to see if you've paid more than the interest is worth. We do this if you've transferred other assets as well. We also use it to work out whether or not you have deprived yourself of assets.
What deprived assets and the reasonableness test are
Another word for deprived assets is gifting. This is where you give away an asset without getting something of at least equal value in return. Read more about gifting.
If you pay more than the cost or value of your interest, the extra amount is a deprived asset.
To assess this, we subtract the value of your granny flat interest from the amount of the assets transferred. We work out the value of your granny flat interest by using the reasonableness test.
For more details contact our Financial Information Service. They can give you information about financial issues.
If you have a financial planner, they can use the Department of Social Services' reasonable value conversion factors test.
Assessing you as a homeowner
We may assess you as a homeowner, even though you don't own the property you have the granny flat interest in. This will depend on the value of the granny flat interest.
Your homeowner status determines:
- if the amount you paid is an asset
- which assets test threshold applies before it affects your rate of payment
- if you might be eligible for Rent Assistance.
Assessing the value of your interest
Non-homeowners have a higher assets test limit than homeowners. The difference between the 2 limits is the extra allowable amount. We compare this to your entry contribution.
Your entry contribution may be the amount you paid for the granny flat interest. If we assessed you under the reasonableness test, it will be either the:
- reasonableness test value of the granny flat interest, if you paid more than your reasonableness test amount
- amount you paid for the granny flat interest, if you paid less than your reasonableness test amount.
If your entry contribution is more than the extra allowable amount, all of the following apply:
- we assess you as a homeowner in the assets test
- we don't include your entry contribution in the assets test
- you can't get Rent Assistance, as you're a homeowner.
If your entry contribution is equal to or less than the extra allowable amount, all of the following apply:
- we assess you as a non-homeowner in the assets test
- we include your entry contribution in the assets test
- you can get Rent Assistance, if you pay a high enough rent.
What happens if you leave the property
If you leave within 5 years, we'll review the granny flat interest.
If the reason for leaving is:
- something you could expect when you created the granny flat interest, the gifting rules will apply
- something that was unexpected, the gifting rules may not apply.
Unexpected reasons may include sudden illness, family relationship breakdown, elder abuse or property damage.
You can be away from the property temporarily during the 5 years for periods up to either:
- 12 months
- 2 years if it's due to loss or damage to the property.
What happens if the property is sold
The owner can't take away your granny flat interest if this happens. They can do one of the following:
- sell it but make your right to live there a condition of sale
- transfer your granny flat interest to another property
- give money or assets to you in return for giving up your granny flat interest.