Granny flats for Pensioners

Granny flats for Pensioners – Centrelink and DVA and granny flats

By Christine Hopper

When families provide granny flats for Pensioners then Centrelink, or DVA, become very interested in the ‘pensioner granny.’  A new pension means test assessment happens when an Age Pensioner, Disability Pensioner, DVA Service Pensioner or War Widow moves into a granny flat .

Rent assistance might be payable to a non-homeowner pensioner granny.  Part of the homeowner pensioner’s payment for the granny flat interest might count as a gift.

What value does Centrelink use for the granny flat interest?  Will the pensioner become a non-homeowner at Centrelink? What counts for the aged care entry asset assessment if granny requires residential care?  Does DVA determine how much I could pay for my granny flat?

What do granny flats for Pensioners look like?

The idea of the granny flat is that an elderly person could live independently but be close to family for mutual support and assistance in time of sickness (of the elderly person or one of the family in the main residence).

In real estate marketing, a ‘granny flat’ is any form of self contained accommodation included with a family home.  The real estate ‘granny flat’ could be an apartment within the main residence, a demountable building close to or separate from the house, or any other self contained accommodation on the home site.

A family could buy a home with a granny flat with the intention of using that self contained space as a home office, or a retreat for teenagers or as a private gym.

But at Centrelink and DVA, the granny flat provisions can apply to any pensioner whose “home” is all or part of a private residence not owned or controlled, by the pensioner or their partner.  A pensioner with a ‘granny flat interest’ could live with the family or independently in a self contained unit. Thus granny flats for Pensioners include other living arrangements in addition to independent living in the real estate ‘granny flat’.

Centrelink, DVA and granny flats for Pensioners – some scenarios

Pa and Granny Jones had always rented a home.
But now that Granny is widowed she would like to live near her daughter, Sue.   Sue and her partner have a granny flat as part of their family home so Sue invites her mother to live there at a modest rent.  Granny Jones is happy to have her own space and be close enough to be involved with her grandchildren.

Centrelink might pay some Rent Assistance to Granny Jones provided that the family provide a paper trail to show that Granny Jones is making a contribution to the costs of her accommodation and utility bills.

Mary sold her home and used all of the proceeds to buy another property which includes a granny flat for Mary and separate accommodation for Mary’s daughter Sally and her family. The new property is held in the name of Sally with Mary having a ‘lifetime interest’ in the granny flat.

Centrelink continue to treat Mary as a ‘homeowner’ because she contributed more than $129,000 to the cost of the new property which includes her granny flat.

Bob sold his home and paid his son John $100,000 to have an additional large bedroom with ensuite bathroom built onto John’s home.  Bob’s $100,000 covered the building costs only, John paid for the architect to design the home extension and obtain the necessary planning and building permits.  Bob has bought a life tenancy in John’s family home and invested the remainder of the proceeds of sale of his former home.

Centrelink treat Bob as a ‘non-homeowner’ as he contributed less than $129,000 to the cost of his granny flat interest.  Centrelink count all of Bob’s investments for the Age Pension means tests.

Joan sold her old suburban house on a large block to a property developer
for one million dollars.  Joan then aged 70 years passed $400,000 to her daughter, Jenny, in exchange for lifetime right to live in the self contained flat attached to Jenny’s home.  Jenny had previously leased the flat to a student who has graduated and moved on.  Jenny used the $400,000 from Joan to pay down her mortgage.

Centrelink consider that the $400,000 that Joan paid Jenny for the life tenancy was less than the maximum allowable under the Reasonableness Test.  Thus Joan is assessed as a homeowner with the $400,000 paid to Jenny as Joan’s contribution to the provision of her life tenancy in the granny flat.  Joan is a homeowner at Centrelink even though her name is not on the property title.

Centrelink count the remaining $600,000 when determining Joan’s Age Pension amount.

If Joan had been older when she entered the granny flat arrangement then the Reasonablenes Test result might have been very different.

In summary, the Centrelink or DVA rules regarding homeowner status and buy-in amounts for granny flats are complex.  Professional advice before making any ‘offer’ of a granny flat arrangement could save time, money and family relationships.

Exiting the granny flat arrangement

If you leave the granny flat arrangement within five years to live permanently somewhere else then Centrelink or DVA, would review your situation.

Your contribution to the establishment of the granny flat interest could be treated like a ‘gift’ to the owner if the granny flat was not your home for the full five years.

You may take a holiday for upto 12 months or be out of a damaged granny flat for 24 months, before you are considered to have vacated your granny flat.

Granny flat interest and Aged Care Entry Asset Assessment

The granny flat interest itself is not included as an asset for the Aged Care Entry Asset Assessment.  But you are not eligible to be a Supported Resident or a Partially Supported Resident if you had owned a home at any time during the two years before you entered residential aged care.

The longevity and potential care needs of the granny flat occupant require consideration well before property transactions and granny flat agreements get started.  Financing residential aged care could be difficult without some liquid assets.

Financial advice before you buy into a granny flat arrangement could avoid later problems.  An early consultation with Financial Care Services could clarify the financial arrangements, potential aged care challenges and Centrelink, or DVA, implications before any property transactions get underway.

Seek legal advice and document the granny flat agreement even when all family members say that they are ‘happy
with the proposed arrangement.

Disclaimer: The information contained in this website is of a general nature only and does not constitute “financial advice”. You should obtain your own personal financial advice before investing any money or moving in to any retirement village, lifestyle community or aged care facility. Financial Care Services is licensed to provide financial advice to individual clients based on their personal situations. © 2012 Financial Care Services Pty Ltd. All rights reserved.

To make an appointment for professional advice, call Financial Care Services (03) 9808 0338