Aged care means test rental income exemption closure

Aged care means test rental income exemption closure

by Christine Hopper

Aged care means test rental income exemption

The aged care means test exemption has allowed for permanent residents of Commonwealth regulated aged care facilities to have the rental income from their former homes excluded from the Centrelink income tests.

This exemption will continue to be available to seniors who are permanent residents in Commonwealth regulated aged care facilities on 31 December 2015. If you are in care and/or signed up for permanent care but are away on social leave or hospital leave on 31 December 2015, you will not be impacted by the change.

As from January 2016, a new aged care resident will have the net rental income from leasing her former home included in her “income” for the purposes of calculating their Means Tested Amount even when the aged care accommodation is being paid on a daily basis. This means that for residents who enter care on or after 1 January 2016, any net rental income will be treated in the same way as any other income stream in the aged care means test.

Hint: If your family member needs permanent residential aged care and you want the option of leasing out her current home then arranging her aged care entry and signing her contract this month could be a good move.

The discontinuance of the aged care means test rental income exemption only impacts the means tested amount for aged care. Rental income from the former principal home will continue to be exempt under the Age Pension means testing arrangements for residents who pay for some of their aged care accommodation costs through periodic payments.

Aged care means test former home rental income exemption

When granny needs to move into residential aged care many families wish to retain her former home. Permanent residents of Commonwealth regulated aged care facilities are eligible for the aged care means test rental income exemption provided that the former home is leased and the owner is paying part of her aged care accommodation costs on a daily basis.

As from January 2016, the aged care means test rental income exemption will not be applied in the calculation of the ‘means tested amount’ for new entrants to permanent residential aged care.

The aged care means test former home rental income exemption will still be available to residents who were in permanent care on 31 December 2015 and for the Age Pension or DVA means tested pensions, of all permanent aged care residents.

No aged care means test rental income exemption for new residents from January 2016

Seniors who enter residential aged care as from January 2016 and subsequently lease out their former homes will have the net rental amount included in ‘Income” for the purposes of the aged care means test.  Thus, new aged care residents could expect to have a higher means tested amount than earlier entrants who lease out their former homes. The higher means tested amount would generate a bigger means tested care fee.

Long term aged care residents might find that the Lifetime Cap on means tested care fees is attained sooner. New residents with significant assets or income in addition to their former homes, might also reach the Annual Caps on means tested care fees.

Aged care means test rental income exemption only when aged care accommodation cost is payable on a daily basis

To be eligible for the aged care means test rental income exemption, the home owner must be a permanent resident of a Commonwealth regulated aged care facility and she must be paying some accommodation costs on a daily basis.

To demonstrate to Centrelink that a post June 2014 aged care entrant is paying some accommodation costs on a daily basis, the latest monthly invoice from her aged care facility would include an item for Accommodation Contribution or Daily Accommodation Payment.

An Accommodation Contribution is the means tested payment required from a Low Means Resident towards her aged care accommodation costs.

Consider Daisy who entered permanent Commonwealth regulated aged care in 2015. On entering the aged care facility, Daisy had assets totaling $140,000 including a modest rural cottage valued at $110,000. Daisy was assessed as having a means tested amount of $45.00 per day; thus Daisy is classified as a Low Means Resident liable for a daily Accommodation Contribution of $45.00.
Daisy chose to lease her former home to her nephew and pay the Accommodation Contribution rather than sell up and the home and pay a small Refundable Accommodation Deposit. Daisy is paying for her aged care accommodation on a daily basis and renting out her former home so she satisfies the conditions for the aged care means test rental income exemption.

A Daily Accommodation Payment is an amount calculated as the interest on the amount of an agreed Accommodation Room Price which has not been paid as a Refundable Accommodation Deposit.

Consider Mary who became a permanent resident in a Commonwealth regulated aged care facility in 2015. Mary’s Resident Agreement includes an Accommodation Room Price of $450,000 and an interest rate of 6.15% per annum. Mary has chosen to pay her aged care accommodation costs by means of a lump sum Refundable Accommodation Deposit of $50,000 and a Daily Accommodation Payment of $67.40.
Mary has retained her former home which is leased via an estate agent for $700 per week rent. Mary’s attorney could show Centrelink her monthly aged care invoice including the Daily Accommodation Payment amounts, together with the estate agents rental statement to the property owner. Together these documents show to Centrelink that Mary has leased out her former home and Mary is paying part of her aged care accommodation costs on a daily basis.

Permanent aged care residents under the pre-July 2014 aged care charge system could qualify for the aged care means test rental income exemption

Seniors who entered standard high care nursing homes before July 2014 could be paying a daily Accommodation Charge. This Accommodation Charge satisfies the aged care means test rental income exemption requirement for some daily accommodation cost payments.

Aged care residents who agreed to an Accommodation Bond for entry before July 2014 could be eligible for the aged care means test rental income exemption if the Bond has not been paid in full. The interest charged on the outstanding portion of the agreed Accommodation Bond could satisfy the aged care means test rental income exemption requirement for some daily accommodation cost payments.

Residents ineligible for the aged care means test rental income exemption

A permanent resident of a Commonwealth regulated aged care facility could only qualify for the aged care means test rental income exemption if she were being charged for aged care accommodation on a daily basis.

An aged care resident who has paid a Refundable Accommodation Deposit ,”RAD” equivalent to her Accommodation Room Price, ARP”, has no outstanding ARP on which to be charged interest. Therefore she would not be paying any accommodation costs via daily payments and would not be eligible for the aged care means test rental income exemption.

Pre July 2014, Fully Supported Residents are not required to pay any part of their aged care accommodation costs; hence they cannot qualify for the aged care means test rental income exemption. These residents retain the Fully Supported status even if the partner dies and the aged care resident owns their former home.

A pre July 2014 entrant who has paid the full amount of her Accommodation Bond would not be paying any interest on an unpaid Accommodation Bond and thus she could not be eligible for the aged care means test rental income exemption.

A senior who lives in supported accommodation, such as an SRS in Victoria, would be ineligible for the aged care means test rental income exemption because she is not paying for accommodation in a Commonwealth regulated aged care facility.

Age Pension and aged care means test rental income exemption

Closure of the aged care means test rental income exemption impacts only the “income” assessment for the aged care means tested fee. All permanent residents of Commonwealth regulated aged care facilities who are paying part of their aged care accommodation costs by daily fees may claim the rental income exemption for the Age Pension Income Test, or DVA Service Pension or DVA Income Support Supplement (“ISS”), Income Test.

For Age Pension and DVA Service Pension or DVA ISS purposes, the aged care resident could continue to be treated as a Homeowner and have the rent exempted from the Income Test provided that she were paying for at least part of her aged care accommodation costs via a daily charge.

Claiming the aged care means test rental income exemption

Pensioners who entered permanent residential aged care before 2016 could have their Homeowner status continued and their rental income exemption applied until 730 days after their former home was vacated.

After two years, 730 days, from when the aged care resident or their partner last stayed overnight in the former home, Centrelink , or DVA, would discontinue the rental income exemption until the aged care resident provided evidence that the home was being rented out and the aged care accommodation costs were being charged on a daily basis.

New aged care residents from January 2016 will need to show Centrelink, or DVA, evidence of the rental income as soon as the home is leased, to ensure that the aged care means tested amount is calculated correctly.

For Centrelink and DVA Pension and ISS purposes, evidence of the daily accommodation cost payments would be required two years after the home was vacated, to maintain the Homeowner status and the Pension rental income exemption.

Help is available with understanding Commonwealth regulated aged care Means Tested Care fees

Aged care means tested care fees and accommodation prices are complex. Understanding the potential impact of leasing rather than selling the former home is critical to finding the right aged care financing option for your family.

Using some financial assets to pay a Refundable Accommodation Deposit could impact on your means tested fees and your potential Age Pension amount. Selling the former home to finance residential aged care could substantially change the both the Age Pension and means tested care fees.

Christine at Financial Care Services understands the DVA Pensions and Centrelink assessment of the means tested amount for aged care both home care and residential aged care.

A consultation with Financial Care Services helps you understand your potential aged care costs together with the DVA and Centrelink implications of rearranging your assets, leasing or selling the former home.

Call Christine on 03 9808 0338 to make an appointment for a consultation. Please email your enquiry to receive a Financial Care Services Financial Services Guide and Aged Care Data Checklist.

Assistance with completing the Commonwealth aged care means testing forms is available to clients of Financial Care Services.

Independent advice about financing residential aged care and the aged care means test rental income exemption

Financial Care Services is an independent financial advisory service specialising in retirees of modest means and aged care entrants. Our core values of working with clients in their lifetime financial planning supports claiming DVA and Centrelink entitlements. Financial Care Services charges fees based on the work involved in advising you about pensions and aged care financial solutions and arranging your investments.

Christine at Financial Care Services understands both the DVA and Centrelink Pensions systems and the Commonwealth aged care fee arrangements.

Financial Care Services is licensed to offer investment strategy advice and to assist you to invest. Financial Care Services does not base fees on the value of your assets nor do we accept any commissions or payments from other service providers.

Christine at Financial Care Services understands the Centrelink assessment of the means tested amount for aged care both home care and aged care.

ssistance with completing the Centrelink aged care means testing forms is available to clients of Financial Care Services

A consultation with Financial Care Services helps you understand your potential and aged care costs together with the Centrelink or DVA implications of rearranging your assets or selling the former home. Call Christine on 03 9808 0338 to make an appointment for a consultation.

Financial Care Services welcomes clients from Melbourne and beyond. Please email your enquiry to receive a Financial Care Services Financial Services Guide and Aged Care Data Checklist.

Arrange an appointment for further confidential, independent and professional advice about DVA, Centrelink, lifestyle or financial issues please contact Christine Hopper 03 9808 0338.

Disclaimer: The information contained in this website is of a general nature only and does not constitute “financial advice”. You should obtain your own personal financial advice before investing any money or moving in to any retirement village, lifestyle community or aged care facility. Financial Care Services is licensed to provide financial advice to individual clients based on their personal situations. © 2015 Financial Care Services Pty Ltd. All rights reserved.