The financial dangers of going to live with your children

Marie and her husband are considering going to live with their son, but she wants to know what will happen to her pension.

Q. Marie
If my husband and I go to live with our son in his home, and lease out our home so that we can pay him weekly rent for our upkeep, will this affect our pension from Centrelink?

A. Depending on the value of your home and your other income and assets this will most likely have a very significant impact on your pension payments.

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Once you and your husband move out of your home, it will become an asset, and if you live in a major Australian capital city the value of this asset could be enough to stop you receiving the pension altogether.

The income that you receive in rent will also have to be assessed under the income test and added to any other income you receive including deemed income from financial assets.

However, your situation is not unusual and there is a solution that many people use to keep their pension when going to live with their offspring. It is called a granny flat interest.

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A granny flat interest means that you would transfer the house into your son’s name in return for accommodation for life, for you and your husband, on his property.

The obvious drawback is if you have other children you were hoping to share the property with on your passing.

You can have a granny flat interest in any kind of property. It doesn’t just apply to properties often referred to as granny flats.

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The granny flat interest may include the same building as the owner of the home or a separate, self-contained building on someone else’s land.

It is always best to seek financial and legal advice before you create a granny flat interest.

Centrelink may accept that you have a granny flat interest, even if it is not in writing. However, it does recommend having a legal document in place to prove what you have agreed to and to help prevent any problems occurring at a later stage.

The document should:

  • confirm your right to live in the home for life
  • say if you’ve agreed to pay rent or look after any upkeep of the property
  • say how the owner will compensate you if they want you to give up your granny flat interest.

The government recently announced that it would provide a targeted capital gains tax (CGT) exemption for granny flat arrangements where there is a formal written agreement in place.

The tax implications are often a key impediment to families creating formal and legally enforceable granny flat arrangements.

You will need to inform Centrelink of how much you transferred or paid to the owner for your granny flat interest and, depending on how much you paid, this will determine whether or not you are a homeowner, and on whether you are judged to have overpaid for what the granny flat interest is worth.

Centrelink won’t consider you to have paid more than the granny flat interest is worth if you are transferring the title of your home for a lifetime right to live in your son’s property.

Do you have a granny flat interest? How does the situation work for you?

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Disclaimer: All content on YourLifeChoices website is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a Centrelink Financial Information Services officer, financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances.

Written by Ben