Getting to the point where you are ready to enter an aged care arrangement is a big milestone, and a decision that is never arrived at lightly.
It’s unfamiliar and daunting territory and navigating the ‘paperwork’ side of the change can often seem all too much.
2017 brought significant changes to the way pension entitlements are calculated. If you need to enter aged care this change also brought a significant change to the exemptions that can apply to your former home if you intend to hold onto it and claim rental income.
From January 1 2017:
- Income on your former home will count as assessable income
- The home will only be seen as an exempt asset for the first two years. At the end of this time the client will be considered a non-homeowner and the value of the home will be fully assessable as an asset.
For new aged care residents, this change will see any rental income from their recently vacated home now being included in their resident’s income for the purpose of calculating their means tested care fee. For those people who entered residential aged care before January 1, 2016 and whose former home has been retained and rented out to help pay a daily accommodation payment (DAP), the rent will continue to be exempt.
From January 1, 2017, the rent is included in the calculation of the aged care means test as well as pension entitlement.
Essentially, there will be three different assessment criteria based on whether the resident entered care before January 1, 2016; between January 1, 2016, and December, 2016; or after January 1, 2017.
So when it comes to entering aged care, the strategy of partially paying the refundable accommodation deposit (RAD) and renting the former home may not still be a financially viable decision. So be sure to educate yourself or your loved ones on the newly introduced rules applying to the former home. We recommend that you seek independent financial advice in relation to these changes and how they may affect you.
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