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 arrangement’ and any payment made for that arrangement is referred to as an Entry Contribution (EC). For Age Pensioners any change in living arrangements may affect Centrelink entitlements so it is important to consider the following.
Centrelink assessment
If you were not assessed under the reasonableness test or you were assessed as paying less than the reasonableness test amount, your EC is the actual amount you paid. Otherwise your EC is the value of the granny flat interest.
You are assessed as a homeowner if your EC is higher than the Extra Allowable Amount of $203,000 (the current difference between the homeowner’s and non-homeowner’s assets under the assets test). In this case your EC is not counted as an asset under the Assets Test.
If your EC is less than $203,000 then you are not considered to be a homeowner but the amount of your EC will be assessed as an asset.
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:
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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.
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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.
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Buying a property in someone else’s name and establishing a right to reside there for the rest of your life.
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. These circumstances include (not exhaustive) payment of extra assets in addition to any of the above listed payments.
Centrelink uses the higher value of either:
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the actual value of the granny flat less additional assets gifted (eg. only the value of the transfer of the title of the home); or
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the Reasonableness Test value (calculated by multiplying the combined partnered rate of annual pension by an ‘age related factor’).
Centrelink will assess any amount paid above the granny flat value as a gift and deprivation rules will apply.
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 to seek relevant legal and financial advice beforehand.
Please contact us on 0415 306 000 if you would like to discuss further.
Important:
This provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business, nor our Licensee takes any responsibility for their action or any service they provide