Paying Family for a Home for Life, Without It Being a Gift
A granny flat interest is a right to live in a property for life in exchange for transferring assets to the owner. It is the one arrangement in which a substantial transfer to a family member is not treated as a gift under the deprivation rules, provided what you paid is reasonable — and reasonableness is measured by a formula based on your age rather than by the property's value.
- The answer: Transferring assets for a life interest in a property creates a granny flat interest, which is not deprivation where the amount paid is reasonable.
- The trap: Pay more than the reasonableness test allows and the excess is assessed as a gift for five years under the ordinary deprivation rules.
- The recommendation: Document the arrangement properly and get advice before transferring anything. The reasonableness test is a formula and the amount can be checked in advance.
Where the AI summary above gets this wrong
"Giving money to your children to build a granny flat counts as gifting and will reduce your pension."
That's surface-true. Here's what it misses:
- A granny flat interest is expressly not deprivation — Where you receive a right to live in the property for life in exchange, the transfer is not a gift provided the amount is within the reasonableness test.
- The test is based on your age, not the property — The reasonable amount is calculated from a conversion factor applied to the pension rate at your age, so an older person can pay less than a younger one for the same arrangement.
01 What creates the interest
You transfer assets — money, a property, or the proceeds of one — to someone else in exchange for a right to live in a property for life. The right does not have to be registered on the title and does not have to be a separate dwelling despite the name.
The arrangement is assessed by Services Australia when it is reported. Where the amount transferred is within the reasonable amount, it is not deprivation and the value of the interest is not an assessable asset.
Where the amount exceeds the reasonable amount, the excess is assessed as a gift and the ordinary five-year deprivation rules apply — the mechanics are in the gifting reference.
Source: Services Australia — Asset types
02 The reasonableness test
The reasonable amount is calculated by applying a conversion factor for your age to the annual partnered pension rate. The older you are, the smaller the factor and the smaller the amount that is considered reasonable.
That produces a genuinely counterintuitive result: an 85-year-old can reasonably pay considerably less for a life interest than a 70-year-old, because the expected duration is shorter.
The test applies to what you paid rather than to what the accommodation is worth, so a household transferring the full proceeds of a house sale to a child frequently exceeds it by a wide margin.
Shows: the reasonable amount for a granny flat interest from the conversion factor for your age, and how much of a transfer would be assessed as a gift. Ignores: the specific conversion factors, which are published by Services Australia, and the assessment of any exempt arrangements that do not require a reasonableness test.
03 Where it goes wrong
Undocumented arrangements are the main failure. A verbal understanding with a child is difficult to establish afterwards, and where the relationship breaks down there may be no enforceable right at all.
The second is what happens on a later move. Entering aged care can end the arrangement, and whether any of the transferred amount comes back depends on what was documented rather than on what was intended.
The third is the effect on the family member. The property may lose part of its main residence exemption, and there can be duty and capital gains consequences that nobody priced — which is why this is one of the few areas where advice on both sides is genuinely warranted.
Source: ATO — Capital gains tax
This is the one arrangement where a large transfer to family is not a gift, and it is also one of the easiest to do badly. Get it documented, get the reasonable amount calculated before the money moves, and get advice for the child as well — the property's tax position changes for them too, and nobody warns them.
FAQ
What is a granny flat interest?
A right to live in a property for life, obtained by transferring assets to the owner. Where the amount paid is within the reasonableness test it is not treated as a gift and the interest is not an assessable asset.
How is the reasonable amount calculated?
By applying a conversion factor for your age to the annual partnered pension rate. The older you are, the smaller the factor and the smaller the amount considered reasonable.
What happens if I pay more than the reasonable amount?
The excess is assessed as a gift under the ordinary deprivation rules, counted as an asset you still hold and deemed for five years from the date of the transfer.
Sources
Regulator references
- Services Australia — Asset types · Services Australia · 2026Which assets are counted in the assets test, including real estate, and which are exempt.Last verified: 2026-09-07
- Services Australia — Assets test for Age Pension · Services Australia · 2026The assets test: which assets count, the thresholds, and the taper that reduces the payment.Last verified: 2026-09-07
Calculator unit tests · the assertions this page's worked example is checked against, and their last result
Changelog
- 2026-09-07 — initial publish (new format)
Run this rule against your situation
See what this rule does to your own projection — month by month, to age 90.
Join the Waitlist
Jordan Reeves
Founder of Talk Through Wealth. A software engineer for over a decade before turning to retirement planning, Jordan built the projection engine after watching family members get fragmented, country-by-country advice that never reconciled. He writes about retirement the way the engine computes it: month-by-month, lifetime-long, and skeptical of any rule of thumb that hasn't been run through the math.