It is often the case that a married couple when getting older is contemplating selling their home in case one of the partners is getting frail and may have to go into aged care. This becomes an interplay between rules of Centrelink, Aged care rules and the ATO. The first thing to consider is whether the government will subsidise the accommodation in the aged care home.
There are a number of charges and fees
- Daily Basic Fee. This is payable by everybody regardless of income and assets and equals 85% of the single aged pension which at present is $66.58. As soon as the partner goes into aged care the assets and income are split 50% between the partners, but instead of one married pension the partners get a single pension each.
- Means Tested Care Fee. This is payable depending on an Assets and Income Test. These tests are similar to the Assets and Income Tests for Centrelink but the home is no longer free and assessed @201,231.20 per partner . Any income in excess of $32,819.80 is assessed @ 50% any assets above $59,000 up to $201,231.20 are assessed @ 17.5%, plus 1% up to $484,693 and 2% above that. When the sum of the two tests is higher than $68.14 the government does not give assistance and the excess above $68. 14 has to be paid as a Means Tested Fee. The killer is the Asset Test , which means that anybody with a house will not get government assistance and has to pay this fee up to $68.14 per day.
There is a silver lining, that if the partner stays in the home, it is occupied by a “protected person” and is not counted as an asset , or is not counted as an asset for 2 years when the partner moves out and the house is rented out.
- Daily Accommodation Fee
This can be paid as a RAD or Refundable Accommodation Deposit or as DAP or Daily Accommodation Payment and can be reduced to a DAC or Daily Accommodation Contribution if you qualify for government support under the Income And Assts Test above. This means that anybody with assets less than $59,000 and income less than $32,819.80 only pays 85% of the pension and does not pay the fees I 1 and 2 above
The remaining partner now has a number of choices and an important consideration will be whether the home should be sold. Again the critical issue is the treatment of the home by Centrelink and Aged Care and whether to sell or not.
Partner stays at Home
Married pension has been replaced by 2 single pensions and the home is not counted as an asset for Centrelink or Aged Care . You have to pay the Daily fee but probably not the Means Tested Care Fee and Daily Accommodation Fee could be reduced to a DAC.
The partner can move out and rent out the house and it will still not be regarded as an asset for 2 years. If a relative or friend lives in the house rent free , they can pay the Daily Accommodation fee. Payment of DAP or DAC is not regarded as an asset or income for Centrelink. The Refundable Accommodation Deposit (RAD) is not an asset or income for Centrelink but when it is refunded becomes an asset with deemed income for Centrelink.
RAD is always an Asset for Aged Care and increases fees and can completely cut out government assistance.
Partner or Single Pensioner rents out the home. 2 Year period
The home can be rented out and still not be assessable under the Asset test for a 2 year period.
If the pensioner is paid under the Asset Test this may be a good strategy (For instance a pensioner with an investment property) . as the extra income may not count under the Asset Test. Be careful, as the Income Test may take over from the Asset Test.
If the pensioner is paid under the Income Test, rental income is not very good income.
If the property is rented out, rental income is reduced by 74.25% under the Income Test and the Means Tested Care Fee increases by 13.38%, so for every dollar in rental income you will only get 12.47cts in hand. ( Bit complicated: 74.25% is 50%pension and 24.5 tax and medicare. 13.38% is the remaing 25.75% @50%. See session 1)
After 2 years it is very bad and time to sell. You may otherwise lose all of your pension.
Partner/Pensioner sells the home.
The proceeds of the house become an Asset with deemed income for Centrelink. Per partner 50% . This may seriously affect the pension for both partners and in some cases completely cut out the pension. It will also affect the Means Tested Care Fee and in most cases this fee will increase to $68.14 per day. There is another 2 year period where the proceeds may not be regarded as an asset if you can prove that the proceeds will be used to buy or build another home or are used to pay for a RAD in aged care. If the proceeds are not used for these purposes, Centrelink Pension may be seriously affected.
Partner buys into a Retirement Village
Similar to a RAD there is an entry fee when buying into retirement or over 50s accommodation.
There are a number of other options (See session 14) but we will only consider the retirement village option.
The Entry Contribution (EC) is treated by Centrelink in 2 different ways depending on the Extra Allowable Amount (EAA).
The EEA is the difference between the Homeowner and non-Homeowner lower allowable asset limit which at present is $242,000.
EC<$242,000 . Assessed as non-Homeowner under the Asset Test. Nil under Income Test. May be eligible for Rent Assistance.
EC> $242,000 . Assessed as Homeowner. Not counted under asset or income test. No rent Assistance.
When you are a single pensioner or a pensioner with a partner in aged care, selling your home may have serious implications for your Centrelink Pension and Age Care Fees.
Get financial advice and do not make hasty decisions. You have at least 2 years to make a decision
There are a number of other things that may be considered:
Family can pay Aged Care fees on the Pensioner’s behalf. Not assessed under Asset or Income test.
Paying the Refundable Accommodation Deposit (RAD) is a good investment @ 8.33%
Pension Loan Scheme to pay Aged Care fees
Granny Flat Arrangements