One element of last month’s Budget that has received little publicity is a new measure to remove the rental exemption on the former home when a person is living in aged care.
The exemption applies to people who pay towards the cost of their aged-care accommodation by daily payment and to the rent for the purpose of calculating the means-tested care fee.
It also applies to both the rent and the asset for the purpose of calculating pension entitlement.
The exemptions for pension purposes are being maintained.
The changes are due to come into effect on 1 January 2016, and are projected to save the government just $26.2 million over five years.
The Government has called it a way of “improving the fairness and equity of aged care means-testing arrangements”.
In reality it makes it harder for people to use their former home to generate income to meet the cost of care.
Those hit hardest of all will be people with few assets outside the home and limited income sources.
Shirley is a pensioner, with a house that produces $400 a week rent. She has $60,000 in the bank and $2,000 in personal effects.
She’s paying a daily accommodation payment (DAP) of $69.70 (which is equivalent to $400,000 refundable accommodation deposit).
Under current rules, Shirley’s means-tested care fee is $1.70 a day and her cash-flow shortfall about $2,000 a year.
If Shirley moved into care after 1 January 2016, her means-tested care fee would rise to $26 a day and her cash-flow shortfall would increase to about $11,000 a year.
Contrast this with Betty, a part-pensioner, who receives $600 a week in rent, has $250,000 in the bank and $20,000 in personal affects.
Betty has paid $650,000 by refundable accommodation deposit and is paying $8.71 a day.
Under the current rules Betty’s means-tested care fee is $45 a day, giving her a cash-flow surplus of $14,170 a year.
Under the new rules, Betty’s means-tested care fee would be $88 a day, and she would have a cash-flow shortfall of $1,500 a year instead of a healthy surplus.
The new rules mean that pensioners are going to have to change their attitudes about keeping and renting their homes as a way of funding aged care costs, particularly if there is not a lot of capital outside the house.
Aged care explained – Federal Govt website