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When is a granny flat not a granny flat?

There are several choices of accommodation older Australians may consider when they can no longer live in their own home.

One option is living with a family member or friend. This arrangement – if formalised – is generally considered as a ‘granny flat interest’ and, as usual, Centrelink has a set strict criteria that must be met if you are to retain some or all of your pension entitlements.

For age pensioners any change in living arrangements may affect Centrelink entitlements so it is important to consider what this means.

When is a granny flat not a granny flat?

The usage of the term ‘granny flat’ in this instance is not referred to as a dwelling. It is an agreement for accommodation for life. In fact, a granny flat interest can describe any type of dwelling – the only difference is that you are not permitted to have any legal ownership of that dwelling.

A ‘granny flat interest’ is created when you exchange payment (assets, cash or both) for a right to live in a dwelling on someone else’s property for life. Any payment made for that interest is referred to as an Entry Contribution, which is assessed by Centrelink under the ‘Reasonableness Test’.

How does Centrelink value a granny flat interest?

Centrelink generally values the granny flat interest as the same amount that is paid for the arrangement. For instance, when the amount paid is one of the following:

  • Transfer of the title of your home to someone else whilst retaining the right to live in that home for the rest of your life. To qualify for this, your home must have been totally exempt from the asset test.
  • Payment to have a granny flat built on someone else’s property or to have their home converted for your accommodation needs and obtaining the right to live in that home for the rest of your life.
  • Buying a property in someone else’s name and establishing a right to reside there for the rest of your life.

Centrelink Assessment

You are assessed as a homeowner if your Entry Contribution is higher than the Extra Allowable Amount (the difference between the homeowner’s and non-homeowner’s assets under the assets test). In this case your Entry Contribution is not counted as an asset under the Assets Test.

If your Entry Contribution is less than the Extra Allowable Amount then you are not considered to be a homeowner, but the amount of your Entry Contribution will be assessed as an asset.

However, caution should be used when structuring the arrangement as there are some circumstances where the granny flat interest is valued differently by using the ‘Reasonableness Test’ amount rather than the paid amount.

Centrelink will assess an amount paid above the granny flat value as a gift and deprivation rules will apply, which will affect your pension payments.

It’s complicated

There are many technicalities and points to consider when moving into a ‘granny flat’ and each individual’s circumstances are affected differently. We recommend those considering setting up a granny flat arrangement seek relevant legal and financial advice beforehand.  Call us at Perth Aged Care Financial Advisers to speak with one of our specialists about your needs.


Human Services website “Granny flat right or interest”