Why a granny flat might be better than an aged-care home—Part 1
Considering a granny flat can raise complex issues relating to family matters, legal issues, Centrelink assessments, Income Tax and Capital Gains Tax. However, it might be worth doing.
I use the term ‘granny flat’ to refer to a self-contained housing unit located on the same block as a single-family dwelling. The granny flat may be custom-built, pre-fabricated, or even a flat-pack.
Regulations for granny flats differ from State to State and will involve both the State Government and the Local Council or Shire. The regulations are readily available and can be a useful starting point for anyone considering this option.
Granny flats can include:
- The conversion of part of an existing principal dwelling, structure or garage
- An extension or alteration that increases the size of an existing dwelling, or
- A detached flat, a separate structure from the principal dwelling.
An internet search will find specialist builders who could be a useful source of advice concerning local building regulations; the risks associated with becoming an owner-builder; and insurance matters.
When weighing up the pros and cons of a granny flat, you’ll need to consider the care needed by your elderly parent, relative, or friend. The prime motivation should be the well-being of the person concerned.
Some enter into a granny flat arrangement for financial gain, while others are motivated by a potential increase in the person’s Centrelink entitlements. Others look at the potential to one day use the granny flat as a studio or, perhaps, student accommodation.
The best starting point is to consider the age and health of the individuals who will occupy the granny flat. Are they capable of looking after themselves? Do they need assistance with bathing, dressing and getting around?
Can they be left alone for hours at a time while everyone in the house is at work? Can they be left while the family goes on holidays? Do they need to be monitored in terms of taking their medications and eating three meals a day?
Family history can be a useful guide to longevity and the potential of developing significant ailments in later life. The family doctor should be consulted about any planned move that could cause the person to become disoriented, depressed, or unhappy.
There are also issues relating to who in the family will make the brave decision to commit to the granny flat project. Some in families have no trouble making big decisions like this while others fret for months and find it difficult to agree on a strategy.
Family jealousy may be involved if it appears one child will benefit from the building of a granny flat in the long term (this could be overcome by each child in the family building a granny flat, and sharing the caring duties!).
Finding the ideal arrangement
There’s no doubt that the long-term care of an elderly person is a big responsibility. It may mean foregoing weekends away and family holidays. In some cases, it may mean that one member of the family will need to give up full-time employment.
The ideal arrangement is one where all the children of the elderly person agree on a proposal and are prepared to have their parent/s update their will to ensure there’ll be no future challenge. Some thought should be given to what happens if the carer gets divorced, suffers an accident, or becomes incapable of providing care due to a long-term illness.
In most cases, one person will stand out as the most likely carer. It’s likely that they will have already researched into the issues involved. They will probably have incurred some costs and spent hours searching the internet, visiting the local council or shire, and talked to professional advisers.
Hopefully, the person who will become the carer has a very good personal relationship with the elderly person. Some families do have favourites, and some families do have ‘black sheep’!
Practical building issues
As mentioned, the regulation of granny flats varies from State to State, and local councils have their own set of rules.
In Victoria, granny flats are referred to as Dependant Person Units (DPU). A DPU has a kitchen and a bathroom and usually shares its sewer and water services with the site’s principal residence. The legislation restricts who can live in them and who can rent them out.
Some councils restrict a DPU to a person dependent on the resident of the main dwelling—normally a family member. Some councils also insist that once the individual no longer uses the DPU it must be removed. Other councils have rules that restrict a DPU being occupied or rented out privately.
It’s wise to visit the local council’s Building and Planning department before making plans, and, if possible, get something in writing. The regulations refer specifically to a DPU, which is strictly a stand-alone dwelling.
There may be situations where an alteration or extension to the principal dwelling would be a better investment. Consult with an experienced builder to explore the options. There are several websites that may assist in identifying issues that relate to specific council areas.
Part 2 looks at financial and legal implications involved in setting up a granny flat.
Owen Weeks is director and authorised representative of Lifestyle Matters Pty Ltd and a Registered Tax Agent. He is a Fellow of the Financial Planning Association, a Fellow of the Institute of Professional Accountants, and an Honorary Fellow of the Association of Superannuation Funds of Australia. He is also the co-author of Retire Bizzi.
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