Maria is working on a plan to subdivide her parents’ property and wants to know about the pension implications.

Q. Maria
Both my parents are on an Age Pension and we are looking at subdividing the double block they live on so that we can build a granny flat for me to be closer to them.

The block is worth $1.2 million; we would be paying for everything, and they wouldn’t have any profit from the house as the money would go into building the flat. Would this affect their pension?

A. I’m not clear on a few of the details you have provided here, but whether you are paying your parents the $1.2 million for the purchase of the block of land, or they give you this block of land, both instances will have an effect on their pension, and potentially stop them receiving it altogether.

If their entire block is worth $1.2 million and you are subdividing that, it has less potential to result in them losing access to the pension altogether, but it is still possible depending on their other assets.

The main way for your parents to preserve their pension and let you live on the property might involve them giving you the title to the whole block and entering into a granny flat interest.

A granny flat interest is an agreement where your parents would be guaranteed to stay in their accommodation for life while they transfer assets to their children without risking pension payments.

It is crucial for both you and your parents to seek independent financial and legal advice before creating 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 at a later stage.

Centrelink won’t consider that they have paid more money than the granny flat interest is worth if they are transferring the title of their property and keeping a lifetime right to live there.

If your parents leave the property within five years, Centrelink will review the granny flat interest.

If the reason for leaving could have been expected, then the gifting rules will apply and their pension will be affected. However, if it was something unexpected, then the gifting rules may not apply.

Unexpected reasons may include sudden illness, family relationship breakdown, elder abuse or property damage.

SOURCE: Ben Hocking, Digital Editor – YourLifeChoices



Scroll to Top