The Assessment of Assets for Aged Care and Aged Pensions

In previous articles we have explained that certain assets are assessed differently for Aged Care purposes.  Some are also treated differently when it comes to the Age pension.  This article will explore some of these differences.

THE FAMILY HOME

The assessment of the family home is probably the most misunderstood asset with regards to aged care and the age pension.  Generally speaking, the former home will be assessed as an asset for Aged care purposes unless occupied by a protected person on the date of permanent entry to care. 

A protected person is defined as:

• A spouse;
• A dependant child
• A close personal relative who has lived in the home for at least 5 years and is entitled to Centrelink income support
• A Carer who has lived in the home for at least 2 years and is entitled to Centrelink income support

When the home is not occupied by a protected person (or ceases to be) the home will be assessed for Aged care purposes at $178,839.20 (current 1/7/22).

For the purpose of the Age Pension Asset Test, the home is not assessable (under the Principal place of residence exemption) for the first 2 years following entry to care, regardless of whether occupied or not.  Importantly, this exemption only continues beyond 2 years when it is occupied by the Spouse or dependant Child.  Otherwise after 2 years the resident is considered a non home owner and the home is assessed at full market value.

Often this will mean the resident can get a better financial outcome (in the first 2 years at least) by retaining the home for 2 years, firstly through a reduced means tested fee and secondly by retaining access to the Age Pension.  Whether the resident can afford to do this however will depend on the level of liquid assets available to fund the ongoing expenses.

Whilst the concessional asset testing of the home applies whether it is rented or not, care should be taken when deciding to rent the family home as income generated will be assessed for both Age Pension and Means Tested fees.  The income received will also be taxable and, depending on the value of the property, may result in a liability for land tax.

REFUNDABLE ACCOMMODATION PAYMENT

Where a resident chooses to pay a Refundable Accommodation Deposit (or a Refundable Accommodation Contribution), this money is still assessable against the residents Means Tested Fee.  As the RAD generates no income however, it does not contribute to the income component of the MTF calculation and can sometimes result in a lower MTF.

The RAD (or RAC) however is not assessable against the Aged Pension.  Often, careful planning around how much RAD to pay can result in significantly higher Age Pension payments.  In some cases, the resident can actually find themselves in a better financial position by buying into a more expensive room!

Investment Properties and holiday homes

As for Age Pension assessment, Centrelink will assess the market value of the property as well as the net taxable income received.  Where a tax return is not available, Centrelink will generally assess 66% of the net rent and where no rent is received, there is no assessable income.

Cash, shares, super (if over Age Pension age), personal assets, cars etc

These assets are all assessable at market value, as they are for the aged pension.  It is worth mentioning however that where an individual is below Age Pension age, superannuation in accumulation phase is not assessable against either Aged care Fees or a partners age pension.  These assets are also subject to Centrelink Deeming (see below).

In the relatively rare circumstances where a resident (or their partner) is under age 67, this can provide some significant planning opportunities to optimise aged care and pension outcomes.  Specialist advice should be sought in this circumstance.

Gifts

For both Aged Care and Aged Pension purposes, gifts made in the last 5 years above $10,000 are assessable and subject to deeming.  A gift is defined as an asset given away or transferred for less than it’s market value.  Amounts above $10,000 per financial year and $30,000 in a 5 year period are considered assessable.

What is Centrelink Deeming?

Quite simply, deemed interest is an assumed return earned on assets regardless of the actual income or capital growth.  It is used to more simply assess the income from certain assets.  The current rates are 0.25% on the first $56,400 ($93,600 for couples) and 2.25% for any amount above that.

Note: This information, whilst current at the time of writing is subject to change. It is intended as general information only and should not be relied on as advice. 

If you, or a loved one are looking at entering aged care, and would like to discuss your options regarding the payments required when entering aged care, please contact Simon from Zenith Aged Care or speak with one of our experienced lawyers on 8525 2700 or click here to request an appointment with one of our Commercial Team.

Article written by Simon Boylan from Zenith Aged Care Consulting
Photo by Alexander Andrews on Unsplash