Changes to rules when keeping your home

FROM January 1 next year, aged care residents who choose to keep and rent their former home will no longer be eligible for an exemption of the rent when calculating their cost of care.

The change has been described as "improving the fairness and equity of aged care means testing arrangements for new residents" and is expected to increase the amount the government receives through means tested care fees by around $26 million over five years.

How it works now

Under the current rules, people who pay towards the cost of their aged care accommodation by daily payment and rent their former home have their home exempt from the calculation of their pension and any rent received exempt from their pension and the calculation of their cost of care.

All accommodation payments that are levied on a daily basis are eligible, these include post reform residents who are paying a Daily Accommodation Contribution (DAC) or a Daily Accommodation Payment (DAP) and pre reform residents who are paying a periodic payment or an accommodation charge.

It should be noted, that simply paying towards the cost of aged care accommodation on a daily basis is only one part of the criteria, they also need to rent the home for the exemption to apply.

Of course the rent doesn't need to be commercial or at arms-length, it can be a notional rent paid by a grandchild, but rent does need to be paid.

How it will work then

From 1 January 2016, people who enter aged care and rent their former home will have the rental income included in the calculation of their cost of aged care.

The value of the home and the rent will continue to be exempt for the calculation of pension entitlement and people who are living in aged care prior to 1 January will not be affected by the change.

For those currently considering moving into aged care, the timing of that move could have a significant impact on their cost of care if they wish to keep and rent their home.

An example

Dorothy is 85 and currently lives at home with support from her family and a home care package.

Dorothy's house is worth $850,000, she has $140,000 in the bank and $10,000 in personal effects.

Dorothy's husband built their house when he returned from the war and she doesn't want the home to be sold.

Dorothy has had a few respite stays at an aged care facility close to her, she has formed a good relationship with a number of the staff and she has said that if she needs to go to aged care in the future this is where she would like to stay.

The facility has a market price of $400,000 RAD or $67.40p.d DAP.

Dorothy's children think she would get $400p.w rent (net) from her home when she moves into aged care.

Dorothy moves into care prior to 1 January, paying $90,000 towards her RAD.

Cost of Care-

Basic Daily Fee $47.49p.d

Daily Accommodation Payment $52.23p.d

Means Tested Care Fee $4.12p.d

Out of Pockets $10p.d

Total $41,552p.a

Income-

Age Pension $22,365p.a

Rent $20,800p.a

Interest @ 2.5% $1,250p.a

Total $44,415p.a

Dorothy moves into care after 1 January, paying $90,000 towards her RAD.

Cost of Care-

Basic Daily Fee $47.49p.d

Daily Accommodation Payment $52.23p.d

Means Tested Care Fee $28.14p.d

Out of Pockets $10p.d

Total $50,319p.a

Income-

Age Pension $22,365p.a

Rent $20,800p.a

Interest @ 2.5% $1,250p.a

Total $44,415p.a

People who are considering moving into aged care should seek specialist advice.


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