Implications of changes to income and assets tests
As outlined in the July 2014 issue of the GCC Newsletter, the rules governing the calculation of fees for residential aged care underwent significant change on 1 July.
These changes have left many new aged care residents facing higher costs.
In particular, the amount payable now places a greater emphasis on the resident's assessable income and assets, which are considered in both the calculation of the accommodation payment and the ongoing care fees.
However, it is important to note that steps can be taken prior to entering aged care that can help minimise the expenses involved. These steps require careful consideration, and consultation with your accountant and financial advisor is more crucial than ever.
One of the key issues that needs to be discussed with your advisors before making any decisions about entering aged care is whether or not to keep the family home.
Below, we discuss some of the key issues that need to be considered:
Should we sell the family home?
Whether the family home will be exempt from the means-testing of aged care fees depends on whether it is occupied by a protected person such as a spouse.
If a protected person resides in the home, it is exempt from the means-test. If not, a portion of the home's value up to a cap will count (as at 20 March 2012, cap is $144,500).
If the home is sold, the entire proceeds will count to determine the means-tested care fee.
This means that, for many new residents, the means-tested care fee will be significantly lower if the home is kept. Keeping the home will also likely result in higher age pension entitlements as it will likely remain exempt from the Centrelink income and assets test (subject to certain conditions).
However, the decision on whether or not to keep the family home is not as simple as it may appear, as several other issues need to be considered, including:
- Capital gains tax implications of renting out a main residence;
- The ongoing maintenance expenses associates with keeping the home; and
- The time and effort involved in managing a rental property.
The decision to sell the family home is always a significant one, however for someone about to enter aged-care that significance is only increased.
Accordingly, before a decision is made, you should consult with your financial planner and tax advisor to ensure all potential issues are adequately considered.
For more information please contact your Goodwin Chivas & Co. Advisor.