JANUARY 1 brought significant changes to the way pension entitlements are calculated. It also brought a significant change to the exemptions that can apply to the former home if you need to enter aged care. The former received a lot more attention than the latter.
Prior to January 1, 2017, aged care residents who paid towards their accommodation by daily payment (DAP or DAC) and rented out their home, had their home’s asset value and any rent received exempt from the calculation of their pension indefinitely.
From an aged care point of view the house had a capped asset value of $159,631 unless a protected person lived there. The net rent was also included as income for the aged care means test, unless the person entered care prior to January 1, 2016.
From January 1, 2017, the rent is included in the calculation of the aged care means test as well as pension entitlement. The asset value (home) will be exempt for a maximum of two years for pension and subject to the $159,631 cap for aged care.
Essentially, there will be three different assessment criteria based on whether the resident entered care before January 1, 2016; between January 1, 2016, and December, 2016; or after January 1, 2017.
What does this mean for a resident?
Mary is a pensioner with a house valued at $850,000, estimated rent of $500 per week, expenses of $4000 per annum, cash assets of $120,000 and personal effects $20,000.
The facility has a market price $400,000 RAD. Mary will pay $50,000 from her cash towards her RAD.
The different assessment criteria create very different outcomes. While we can’t turn back the clock, people living in or moving to care should ensure they know the special rules that can apply to the former home.
- Rachel Lane is the principal of Aged Care Gurus, specialising in retirement and aged care for more than a decade.
With financial commentator Noel Whittaker she is co-author of Aged Care Who Cares, which looks at aged care and retirement living options – 1300-855-770, www.agedcaregurus.com.au
* Rates are correct as at January 1, 2017.
