Granny Flat Arrangements – What to consider?

What is a Granny Flat Arrangement (GFR)

Granny flat rights are usually informal family arrangements where a client transfers money, assets or the title of his/her home to a family member (or other person) and in exchange, receives either the right to accommodation for life or a lifetime interest in private accommodation owned by someone else. The client does not have any legal ownership of the property that they live in.

Home care services can be accessed by a person living in a granny flat arrangement.

Establishing granny flats

A granny flat right can be created in the following ways:

  1. A client transfers or provides funds to another person in exchange for the right to live in that person’s existing home.
  2. A client transfers or provides funds to another person to pay for expenses to modify that person’s home or to build a stand-alone granny flat to accommodate the client in exchange for a lifetime right to live there.
  3. A client pays for the person to purchase a new home and the client also moves into this home with the right to permanent accommodation.
  4. A client transfers title of their home to another person and receives a lifetime right to continue living in that home (the other person and their family may or may not also move in with the client).

Normally a transfer of money and/or assets would be assessed by Centrelink / DVA under gifting and deprivation rules but special rules apply where a legitimate granny flat right has been established. Special rules also apply to determine whether the client is a homeowner or non-homeowner for assets test purposes because it is not as straightforward as looking at the ownership of the home.

If the client only transfers part of the title to another person, a granny flat right has not been established. This is because the person still has legal title to the property. The transfer will be assessed under normal gifting rules and the client remains a homeowner with his/her share of the home an exempt asset.

Centrelink treatment of granny flats

A granny flat right can be created by transferring either money or property to another person in exchange for a right to live in a home owned by that other person.

Centrelink/Veterans’ Affairs (DVA) need to know the amount a person transfers to the other person in exchange for a granny flat right or interest. This will have implications for entitlements to a means-tested payment as well as aged care fees.

Centrelink/DVA uses this amount to work out:

  1. If the person deprived themselves of assets by paying too much, and
  2. Whether the person is a home owner or a non-home owner.

These are done as two separate tests, but combine together to determine the overall impact for the client.

A note on deprivation

No deprivation will occur if a person creates a granny flat right in one of the following ways:

  • Transfer the title of their home to someone else for no cost and keep a lifetime right to live in that home or in another home owned by that person, or
  • Pay the actual costs to renovate or build a granny flat on someone else’s property and establish a lifetime right to live there, or
  • Purchase a property in someone else’s name and establish a lifetime right to reside there

In other words, there is no deprivation if home ownership is transferred as long as the person receives a lifetime right to live in the home, or if the amount paid (entry contribution) equals the expenses paid to provide the accommodation.

A note on homeownership

The actual amount paid by the person for a granny flat right is important when determining whether the person continues to be a homeowner or not.

The following table summarises the assessment by Centrelink/DVA for pension/allowance purposes.

Amount of entry contribution paid is … Homeowner status Asset test treatment of entry contribution Rent assistance
Less than or equal to the extra allowable amount^ Non-homeowner Assessable asset May be payable*
More than the extra allowable amount^ Homeowner Exempt asset Not eligible

^ The extra allowable amount is the difference between the lower thresholds for a homeowner and a non-homeowner.
* Rent assistance is payable if the person pays rent above the minimum required to be eligible for this benefit.


Adam in the above example paid $140,000 to his daughter to cover her expenses. This was not considered to be a deprived asset. But for homeowner status purposes, the amount paid was less than $214,500 (difference between homeowner and non-homeowner thresholds) so he is assessed as a non-homeowner.

Legal Considerations

All parties involved in the granny flat right should obtain legal advice. This ensures that a formal agreement is reached and all parties protect their rights.

Before a Granny Flat arrangement is entered into, the parties need to consider such things as:

  • What happens if a party changes their mind?
  • How/can it be unwound? At what/whose cost?
  • What happens if granny needs to go to Aged Care, because her needs become beyond the capacity of the child to assist with?
  • Who pays rates, insurance, electricity, maintenance, and other outgoings?
  • What if the child becomes sick, or has to move away, dies, or separates?
  • What happens if the property is to be sold – does the granny flat interest pass to the new property?
  • Is the payment treated as a debt, which is eroded over time, or a percentage of the value of the property, which increases over time?
  • Is there a fee (offset against the contribution) for the care assistance, and living accommodation the flat provides?
  • What do the other children say, if their hoped for inheritance is effectively (partially or wholly) passed on to one child only?

Expert Legal Advice is essential


Need help?

We can advise you on the financial implications and get one of our trusted Solicitors to advise you on the legals

This information has been provided as general advice. We have not considered your financial circumstances, needs or objectives. You should consider the appropriateness of the advice. You should obtain and consider the relevant Product Disclosure Statement (PDS) and seek the assistance of an authorised financial adviser before making any decision regarding any products or strategies mentioned in this communication.

Whilst all care has been taken in the preparation of this material, it is based on our understanding of current regulatory requirements and laws at the publication date. As these laws are subject to change you should talk to an authorised adviser for the most up-to-date information. No warranty is given in respect of the information provided and accordingly neither Alliance Wealth Pty Ltd not its related entities, employees or representatives accepts responsibility for any loss suffered by any person arising from reliance on this information.

Posted in Age Pension, Aged Care, Retirement.