Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 83

Aged care and granny flats come with their own rights

When most people hear the words “aged care” they think “nursing home”. This is normally quickly followed by the words “Not me!” Aged care decisions, whether they are for yourself or a loved one, are complex and the choices are far more diverse than simply stay at home or move into an aged care facility.

This article is the first in a three-part series examining the different legal and financial arrangements that people enter into – sometimes without realising – in meeting their need for care.

Mum’s happy in her own little granny flat” sounds like the perfect arrangement, with Mum or Dad or both enjoying their own private space within a property occupied by an adult child who is close at hand to help. But such an arrangement embodies significant legal and financial implications that can impact the cost of residential aged care if required down the track.

Many people think of a granny flat as a small self-contained unit built in the backyard or semi-detached to the main home. However, a granny flat and with it a granny flat ‘right or life interest’ can also be established within an existing home. Often this occurs when a parent moves in with their children and the children modify the home to enable the older person to receive assistance and move around safely.

What is a ‘granny flat right’?

A granny flat right is typically an arrangement made in a family where accommodation is provided in exchange for a payment or transfer of assets. Under social security laws, individuals can transfer assets in excess of the gifting limits in exchange for a right of occupancy in a residential property.

There are generally three ways in which a granny flat right or life interest is established:

  1. The parents sell their home and pay for a self-contained unit to be built on the children’s property or cover the cost of modifications to the existing home.
  2. The parents remain living in their home and have the children move in to provide companionship and care and transfer the title of the home to the children.
  3. Both the parents and the children sell their existing homes and purchase a new home in the children’s names.

Note: If the parents retain or have ownership of the property, a granny flat right or life interest has NOT been established.

The amount someone pays for a granny flat right will determine their homeowner status and whether the amount paid is exempt for pension purposes. It will also determine their eligibility for rent assistance. If the amount paid is less than $146,500 , they are considered a non-homeowner, the amount paid would be assessable and they may be eligible for rent assistance. The opposite is true if they pay more than $146,500 – they are deemed to be a homeowner, the amount paid is exempt and they would not be eligible for rent assistance.

If the former home is sold and exchanged for the granny flat right, then pension entitlement would remain unchanged as the asset position remains the same. If the proceeds from the sale of the home and other assets are used to purchase the granny flat, then pension entitlement would likely increase. However there are limits and once exceeded the amount above the limit will be treated as a gift.

How much is too much?

Generally speaking the amount paid for a granny flat right or life interest is considered to be the market price. This is because they are family arrangements and it can be difficult to place a value on them. However, a reasonableness test will be applied if:

  • Someone transfers the title to their home (or purchases property in another person’s name) and transfers additional assets.
  • Someone pays for the cost of construction and transfers additional assets.
  • It is considered that the person is establishing a granny flat right to gain a social security advantage.

The reasonableness test amount is calculated by multiplying the combined annual couple rate of the pension (on the date the right was established) by the relevant conversion factor. The relevant conversion factor is available from Centrelink and will depend on the age of the person (or the youngest member of the couple) next birthday. For example, the relevant conversion factor for someone who is 79 next birthday is 10.25, and the reasonableness test amount is 10.25 x $33,488 = $343,252.

Complexities often overlooked

While the idea of the family looking after their ageing members is certainly not a new concept, the complexities of such arrangements are often overlooked. What will happen if the children wish to go on holidays? What will happen if the parent’s care needs change and they cannot be safely looked after in the home? Who should pay for the cost of care? Will the parent make a contribution to household expenses such as food, utilities and insurance? Of course if the living arrangement continues for many years it may be necessary to consider what the consequences would be if the adult children divorce or if one of those caring for the parent became ill or passed away. While the obvious answers to increasing care needs may be to seek assistance through care packages, respite stays or even permanent residential aged care, often these options have never been discussed and contradict the parent’s expectations.

Because in many cases the purchase of the granny flat right is coming from the sale of the family home (or the transfer of the home) disputes often erupt amongst siblings who, although happy to concede that they are unable or unwilling to look after their ageing parents, have a vested interest in the family home as the largest asset in the future estate.

For people who think that residential aged care will be required in the future it is important to be aware: if someone needs to vacate a granny flat within five years of establishment for a reason that could have anticipated at the time the granny flat right was established, the value of the granny flat right can be considered a deprived asset. This means that both the asset value and the deemed income can be assessed for determining the accommodation payment and the means tested care fee payable to the aged care facility.

RL Picture1 101014

RL Picture1 101014

Rachel Lane is the Principal of Aged Care Gurus and oversees a national network of financial advisers dedicated to providing quality advice to older Australians and their families. You can read more about Granny Flat Rights and Life Interests in the book “Aged Care, Who Cares; Where, How and How Much?” by Rachel Lane and Noel Whittaker.


Leave a Comment:



Providing financial assistance to parents

Retirement communities come in different shapes and sizes

Why are high marginal tax rates bad for workers but good for retirees?


Most viewed in recent weeks

Stop treating the family home as a retirement sacred cow

The way home ownership relates to retirement income is rated a 'D', as in Distortion, Decumulation and Denial. For many, their home is their largest asset but it's least likely to be used for retirement income.

Two strong themes and companies that will benefit

There are reasons to believe inflation will stay under control, and although we may see a slowing in the global economy, two companies should benefit from the themes of 'Stable Compounders' and 'Structural Winners'.

Welcome to Firstlinks Edition 433 with weekend update

There’s this story about a group of US Air Force generals in World War II who try to figure out ways to protect fighter bombers (and their crew) by examining the location of bullet holes on returning planes. Mapping the location of these holes, the generals quickly come to the conclusion that the areas with the most holes should be prioritised for additional armour.

  • 11 November 2021

Reducing the $5,300 upfront cost of financial advice

Many financial advisers have left the industry because it costs more to produce advice than is charged as an up-front fee. Advisers are valued by those who use them while the unadvised don’t see the need to pay.

Welcome to Firstlinks Edition 431 with weekend update

House prices have risen at the fastest pace for 33 years, but what actually happened in 1988, and why is 2021 different? Here's a clue: the stockmarket crashed 50% between September and November 1987. Looking ahead, where did house prices head in the following years, 1989 to 1991?

  • 28 October 2021

Why has Australia slipped down the global super ranks?

Australia appears to be slipping from the pantheon of global superstar pension systems, with a recent report placing us sixth. A review of an earlier report, which had Australia in bronze position, points to some reasons why, and what might need to happen to regain our former glory.

Latest Updates

Investment strategies

Are they the four most-costly words in investing?

A surprisingly high percentage of respondents believe 'This Time is Different'. They may be in for a tough time if history repeats as we have seen plenty of asset bubbles before. Do we have new rules for investing?

Investment strategies

Firstlinks survey: the first 100 tips for young investors

From the hundreds of survey responses, we have compiled a sample of 100 and will publish more next week. There are consistent themes in here from decades of mistakes and successes.


What should the next generation's Australia look like?

An unwanted fiscal drain will fall on generations of Australians who have seen their incomes and wealth stagnate, having missed the property boom and entered the workforce during a period of flatlining real wages.


Bank results scorecard: who deserves the gold stars?

The forecasts were wrong. In COVID, banks were expected to face falling house prices, high unemployment and a lending downturn. In the recovery, which banks are awarded gold stars based on the better performance?

Exchange traded products

In the beginning, there were LICs. Where are they now?

While the competing structure, ETFs, has increased in size far quicker in recent years, LICs remain an important part of the listed trust sector. There are differences between Traditional and Trading LICs.


Should you bank on the Westpac buy-back?

Westpac has sent out details of its buy-back and readers have asked for an explanation. It is not beneficial for all investors and whether this one works for some depends on where the bank sets the final price.

Investment strategies

Understanding the benefits of rebalancing

Whether they know it or not, most investors use of version of a Strategic Asset Allocation (SAA) to create an efficient portfolio mix of different asset classes, but the benefits of rebalancing are often overlooked.


Six stocks positioned well for a solid but volatile recovery

The rotation to economic recovery favouring value stocks continues but risks loom on the horizon. What lessons can be drawn from reporting season and what are the trends as inflation appears in parts of business?



© 2021 Morningstar, Inc. All rights reserved.

The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.