Ancillary accommodation or a 'granny flat' on an existing property can be a convenient and cost effective option for some people.

It can allow families to use their existing land and provide close access whilst still ensuring independence. Granny flats may be an extension to the home or a separate dwelling in the backyard.

If you contributed money or other valuable assets in exchange for your granny flat, Centrelink or the Department of Veterans' Affairs may regard you as having a 'granny flat interest' for the purposes of assessing assets or eligibility for rent assistance. Such a payment made to a family member is generally an exempt asset for social security purposes. This can enable you to contribute substantial assets without losing your pension entitlements.

What is a granny flat interest?

A granny flat interest is where you pay for the right to live in a specific home that you don’t own for the rest of your life. When we think of a granny flat we usually picture the little cottage built on the back of a family member’s home. But it includes any arrangement where you make a financial contribution to a property in exchange for the right to live in the property. This can include situations where, in exchange for accommodation, you:

• pay to build a granny flat in the backyard of your adult child’s home;
• pay for additions or renovations to your adult child’s home;
• pay a lump sum for the right to live in an existing home;
• transfer the title of your home to your child;
• make a financial contribution to the purchase of a property by your child, including paying off an existing mortgage.

What are the risks?

There are many ways things can go wrong. Most people won’t have lived with their parents, or parents with their children, since they first moved out of home. There is often the addition of an “in-law” and grandchildren in the mix, so they really don’t know if they will all get along in a long-term shared living arrangement. We have developed a guide called Moving in with your family - multigenerational living and 'granny flat' arrangements to help seniors decide if a granny flat living arrange would be suitable for them. 

Most problems arise because the parties to the agreement haven’t frankly discussed their expectations of the arrangements and there is no plan for how any issues will be dealt with.

Advocare has a useful publication called ‘Your Money, Your Life, Your Choice’  that examines many of the issues that you should discuss if considering a granny flat arrangement, including:

• Roles and responsibilities – who does what for whom, what degree of care will you expect and how much help will you be expected to provide in return?
• Privacy and independence – will you still be able to have a life separate to the family you will be living with?
• Expenses – how will expenses be shared?
• Problems – how will any disputes be resolved? What if you have a falling out with a family member?
• The future – how will changes in circumstances affect the arrangement e.g. marriage breakdowns, need to re-locate for work, increased care needs.

Some tips:

You should seek legal and financial advice before agreeing to any exchange of money or assets to family.

Have a frank and open discussion with family. Try to anticipate the various scenarios that may arise and discuss what would happen if any of these should occur.

Make sure that any agreement you come to is fully documented, preferably by a lawyer.

Building a granny flat

Granny flats do not require a property to be subdivided, but check with your local authority for requirements under their laws. Approval is also required from the Water Corporation.

Granny flats can be custom designed or can be purchased as a kit or prefabricated home. They need to be built either by a registered builder or owner-builder.

There are a number of companies in the market that specialise in building granny flats and can manage all drawings, approvals and construction.

More information is available on the renting out a granny flat page.