Granny flat rules

Will building her daughter a flat on her property affect Lyn’s Age Pension?

Granny flat rules

Lyn would like to build her daughter a ‘granny flat’ on her property, but isn’t sure how this will affect her part Age Pension.

Q. Lyn

We are considering building a granny flat on our property, which would be for our daughter and grandchild. At the moment she lives far away where rent is cheap, but she would have less difficulty obtaining work if she lived in Sydney metro area. We would like to provide something decent for her but cannot afford to purchase anything in Sydney area, as well as that it would have an affect on our part Age Pensions due to gifting rules. Our concerns are: 

  • Will Centrelink view this as gifting? This unit would not belong to her, she would only be occupying it for a period of time.
  • Will Centrelink deem us to be earning income even if we don't charge rent? This is our main concern as it might bump us up over the income limit, depending on how much they deem the rent to be.
  • Would Centrelink treat us more favourably if we added a two-bedroom addition to our property instead thereby increasing the value of our property (same as granny flat) but not actually getting any monetary return from it?
  • If we go via this last method, would we even have to inform Centrelink as our daughter would just be returning home and paying no rent?

A.     Provided by our no-nonsense planner, Maurice Patane

In your case, this should be viewed as a dual occupancy as opposed to a granny flat. You are intending to build on your existing land and on the same title as part of your principal home. If the dual occupancy is let to a near relative (your daughter), then it is part of your principal home and excluded as an asset for assets test purposes. 

With the above in mind, Centrelink should not view this as gifting as it will form part of your principal place of residence.

In addition, as your daughter is living in the home without a formal contribution arrangement, then there is no income to declare (deemed or otherwise). On the other hand, if rent is being charged, then it must be declared.

Your Centrelink position would be the same whether you add two bedrooms or a separate building on your existing home. You should advise Centrelink of any changes in your situation. In fact, your position should improve as you have most likely used personal funds that are currently being assessed to improve the value of an asset (your home) that is not assessable. 

As your daughter may only be there for a period of time, the additional building may provide you with the ability to obtain additional rent in the future. If this occurs, the second home would then be included as an asset and assessed under the asset test, and the rent would be assessed under the income test.

Maurice Patane has been a financial planner for over 25 years. His experience has shown him that many Australians are not living the lives they dream of or wish for, which is often due to poor financial decision-making. Maurice is dedicated to helping everyday Australians take control of their financial future, so that they no longer have to worry about money.

Maurice Patane
Access Financial Management AFSL 229760
Ph (03) 9500 9988


    To make a comment, please register or login
    10th Oct 2014
    Claim for Supporting Your Daughter !!
    10th Oct 2014
    And will the daughter being claiming for rent allowance?
    10th Oct 2014
    The daughter will not be paying rent so she can't claim for it.
    10th Oct 2014
    I did this for my mother 20 years ago, & the treatment was just as your advice.

    I currently have a daughter living in it, which has saved her about $40,000 in a couple of years. This has allowed her & her husband to buy a new home, they will move into next month.

    I now have my son lining up for it. It has worked well, but I was advised to charge rent, with a formal lease agreement to avoid complications with ownership & inheritance, should it occur. I have done this, charging $1.00 PA for the flat, with separate electricity & phone connection. All this gave no pension problems.
    10th Oct 2014
    Whilst not 100% sure you may have this wrong Maurice.
    A granny flat is allowable on a residential property (<60 sqm in size) and this may be let out in future. Adding onto your home and then renting this section out leaves liable for capital gains tax when the home is sold.
    At any rate better to check if deeming applies (I do not think it does here) before you begin. If free rental then who is going to know anyway.
    Good luck.
    hurdy gurdy
    11th Oct 2014
    Please please please - document the arrangement - keeps Centrelink and the other children (inheritors) happier
    11th Oct 2014
    If I build a granny flat can I claim the financial cost of borrowing money to build it against any income earned?
    12th Oct 2014
    12th Oct 2014
    This is interesting as we did this many years ago but I don't know how it stands as legal these days. Can someone comment on who/how we find out the law on granny flats in Queensland
    12th Oct 2014
    Thanks Solomon. But not sure if for Centrelink or tax department or both!
    13th Oct 2014
    for tax department. don't know about centerlink, but cant see why not
    23rd Oct 2014
    Also it may affect yiur rates ( s ours has been affected ) our council told us that if we had a door leading into the flat from our home it could be asessed as just extra bedrooms but as there is no adjoining door the flat has to be assessed as a seperate building therefore extra rates are to be paid. Also we no longer can claim a pensioner discount on our rates.
    9th Sep 2016
    You sound like great parents, helping your kids out that way; I hope to do something similar when mine get older. I can’t say I know a whole lot about the law but this might help.

    I also came across this and it looked like there may be some useful info in it for you. Hope everything works out for the best.

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