Aged care residents renting former homes

Aged care residents renting former homes

 
by Christine Hopper

Closing homeowner extension for aged care residents renting former homes

Small changes in Social Security legislation impact new aged care residents renting former homes. The changes mean that as from 2017, new aged care residents renting former homes will have the net rental income counted as “income” at Centrelink and DVA. Also, these new aged care residents renting former homes will not be treated as “homeowners” permanently.

Rental income counted at Centrelink for aged care residents renting former home

Entrants to permanent residential aged care from January 2017 will have any rental income from leasing their former homes counted as “income at Centrelink”. This means that the net rental income will be treated just like any other income of aged care residents renting former homes.
For DSP and Age Pensioners, the Pension payment is reduced by half of any income in excess of the Income Allowance. Thus a single Pensioner could have her Pension reduced by upto half of the net rent from leasing her former home.

For new aged care residents renting former homes, the “income component of the means tested aged care fee” includes half of any income in excess of an Allowance. This Allowance is similar to the amount of income that a full Pensioner could get.

For new aged care residents renting former homes and generating more other income than the Income Allowance, only 25% of the net rent would be available for spending on aged care. Pensioners who have little other income could retain a higher proportion of their net rental income.

Homeowner status extension closes for aged care residents renting former home

All new entrants to Commonwealth regulated aged care would lose their “homeowner” status at Centrelink two years after the home is vacated. This “homeowner” status period expires 730 nights after the aged care entrant or their spouse or another protected person, last stayed overnight in the home.

Currently aged care residents renting former homes and paying for Commonwealth regulated aged care accommodation at least partly by daily payments may retain their “homeowner” status. This special condition will not be available to people who become permanent residents of Commonwealth regulated aged care facilities after 2016.

Closing the homeowner extension for renting former homes means that all new aged care residents could lose their “homeowner” status two years after the home was vacated.

Impact of closing homeowner extension for aged care residents renting former homes

If the former home of a permanent resident of a Commonwealth regulated aged care facility has been vacant for two years then the “homeowner’ status ends. Consequently, the former home is counted as an investment property of the now “non-homeowner” aged care resident.
An investment property is counted at net market value at Centrelink and DVA. You may deduct the amount owing under a mortgage from the market value of that investment property.

Consider Mary who moved from her home into Commonwealth regulated aged care. For the first two years that Mary is away from her home, she could be a “homeowner” at Centrelink.
For Age Pension purposes, initially Mary’s home would be disregarded for the Assets Test but her other assessable assets would be subject to the “homeowner” Assets Test. For the “asset component of the aged care means test”, Mary’s vacant home would be counted at the notional value of $159,631.20 in November 2016.

Once Mary loses the “homeowner” status, her former home counts as an investment property. The market value of Mary’s former home is $660,000, Mary had no outstanding mortgages on her property.
As a “non-homeowner” with an investment property, Mary could expect her Age Pension to be reduced substantially by the non-homeowner Asset Test.

Also changing to “non-homeowner” status would impact Mary’s “asset component of the aged care means test”. Treating Mary’s former home as an investment property could increase her “aged care means test asset value” by about $500,000. If Mary had more than $386,000 of other assets then her “asset component of the aged care means test” could increase by about $10,000 per year.

Overall, the change from “homeowner” to “non-homeowner” with an investment property, could substantially reduce Mary’s Age Pension and increase her means tested aged care fees significantly.

Impact of closing homeowner extension for current aged care residents renting former homes

The homeowner extension for aged care residents renting former homes will continue to be available for people who are permanent residents of Commonwealth regulated aged care facilities on 31 December 2016.

An earlier small change in the aged care rules included the rental from leasing the former home in “income” for the “income component of the means tested aged care fee”. This change could result in a higher “income component of the means tested aged care fee” for seniors who became permanent residents of Commonwealth regulated aged care facilities from January 2016.

The changes to the Centrelink treatment of aged care residents renting former homes only applies to new entrants to permanent aged care. The critical date for determining the Centrelink impact of renting a former home is the date the homeowner becomes a permanent resident of a Commonwealth regulated aged care facility.

Planning ahead for aged care residents renting former homes

The current Centrelink treatment of aged care residents renting former homes would apply to new permanent residents in 2016. Families who really want to lease a senior’s home after she moves into residential aged care have options. One option could be to bring forward her entry into permanent residential care to late 2016. Another option would be to accept that your family member could be receiving a lower Age Pension whilst paying her means tested care fees at a faster rate.

Costs of residential aged care for our family member

The families of new entrants to permanent residential aged care face a complex array of fees and charges. Whilst the basic daily fee is a flat rate for all residents, accommodation costs are often negotiable but care fees are means tested.

The actual costs of residential aged care for an individual depends on the amount of her Accommodation Room Price and her financial position. Families can be surprised at how the means tested charge care fees change if they rearrange the aged care resident’s assets.

The potential changeover from homeowner to non-homeowner exactly two year after vacating the former home will be another critical point in assessing aged care costs.

Financial Care Services your independent financial adviser

Help is available. 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.

Financial Care Services welcomes clients from Melbourne and beyond.

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.

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.

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. © 2016 Financial Care Services Pty Ltd. All rights reserved.