Six strategies to fund accommodation costs | Accurium

Six strategies to fund accommodation costs

Accommodation is usually the largest cost associated with the move to residential aged care. Frequently requiring the sale of many assets or large assets, strategies to fund accommodation is a key aspect of aged care advice.

Although there are mechanisms in place for those with very little means to have their accommodation subsidised by the Government, there will still be many who will need to pay the published price of their chosen aged care home (or an amount agreed with the home).

This cost averages1 $391,000 across Australia and $423,000 in major cities but can often exceed $1,000,000 in some areas.

The Aged Care Reforms effective 1 July 2014 provided more flexibility for residents to meet the cost of accommodation.

The Aged Care Reforms effective 1 July 2014 provided more flexibility for residents to meet the cost of accommodation. They can pay their accommodation as a refundable lump sum, ongoing payments or a combination of both, and have 28 days from their date of entry to decide how to pay.

Ongoing payments are simply interest on the amount of the published (or agreed) price that is not paid as a lump sum.

The interest rate (known as the Maximum Permissible Interest Rate or MPIR) for ongoing payments is set by the Government and is 5.77% as at 1 April 2018. Importantly, while this rate is reviewed and can change quarterly, the rate that applies throughout a resident’s tenure (if they don’t change rooms) in the aged care home is set at the date of entry.

There are many strategies to fund lump sums and/or ongoing payments, and depending on the resident’s circumstances, some can work better than others.

This month’s article will discuss six of these strategies and identify their technical and practical considerations:

1. selling existing assets to fund lump sums;

2. selling the former home where there are no other assets;

3. renting the home to fund ongoing payments;

4. accessing the Centrelink pension loan scheme;

5. loans from family members; and

6. releasing equity from the former home.

Strategy 1 – Sell existing assets

Selling existing assets and using the proceeds to fund lump sum accommodation payments can make a lot of sense in many situations. Lump sum payments effectively reduce ongoing payments by a rate equal to the MPIR. Where the existing asset is providing returns that are below the MPIR, selling that asset to make a lump sum accommodation payment can improve outcomes.

In addition to negating ongoing payments, lump sum payments are exempt under the Centrelink/DVA means tests. This means paying a lump sum will effectively convert an otherwise assessable asset to an exempt asset, potentially increasing Age Pension.

Importantly, where a part lump sum has been paid, ongoing payments on the unpaid amount can be deducted from the lump sum to further improve cash flow.

Where the existing asset is providing returns that are below the MPIR, selling that asset to make a lump sum accommodation payment can improve outcomes.

Case study – Ruth and Ricardo (part 1)

Ruth and Ricardo (both age 86) have been caring for each other for some time. However Ricardo’s health has deteriorated recently and a decision has been made to have him cared for in an aged care home.

The couple owns their home ($900,000) and Ruth will remain living there. They have $470,000 in cash and term deposits earning 3% interest (most of which were from an inheritance they received a few years ago) and $20,000 in personal assets. Their current annualised Age Pension is $27,032.

Ricardo’s aged care home has a published price of $500,000 and they estimate their living expenses (in addition to Ricardo’s aged care fees) to be $30,000 per annum after Ricardo has moved there.

Table 1 compares cash flow outcomes for Ruth and Ricardo if they:

  • pay Ricardo’s accommodation entirely as ongoing payments;
  • use $400,000 from their cash and term deposits to pay a lump sum accommodation payment and ongoing accommodation payments on the outstanding $100,000 from their cash flow; and
  • fund the ongoing accommodation payments on the outstanding $100,000 from the lump sum they paid.

Table 1 – Lump sum vs ongoing accommodation payments

Cash flow (Year 1)  $500k as ongoing payments   $400k as lump sum $100k as ongoing payments from cash flow  $400k as lump sum $100k as ongoing payments from lump sum 
Age Pension  $38,654
$47,195  $47,195 
Interest income  $14,100  $2,100
$2,100 
Living expenses  -$30,000  -$30,000  -$30,000
Net cash flow before aged care fees  $22,754  $19,295 
$19,295  
Basic daily care fee  $18,308  $18,308
$18,308
Means-tested care fee  $799  $799  $799 
Accommodation payments  $28,850  $5,770  $0i
Total aged care fees  $47,957
$24,877  $19,107
Estimated tax  $0  $0  $0 
Cash flow surplus/shortfall  -$25,203  -$5,582 $188 

Assumptions: Centrelink and aged care rates and thresholds as at 20 March 2018

iAt the end of the first year the refundable lump sum will reduce to $394,230 (assumes ongoing payment of $5,770 is deducted at the end of the year).

Cash flow observations:

  • Ruth and Ricardo’s Age Pension will be based on the higher illness separated couple rate and will increase to $38,654 per annum when Ricardo moves into the aged care home. This increases further to $47,195 per annum (maximum rate for an illness separated couple) if they use their cash and term deposits to pay a $400,000 lump sum as this amount becomes an exempt asset for Centrelink/DVA purposes.
  • Interest income reduces by $12,000 (from $14,100 to $2,100) however ongoing payments reduces by a greater amount equal to $23,080 (from $28,850 to $5,770).
  • Overall cash flow improves from a shortfall of $25,203 to a shortfall of $5,582 and to a surplus of $188 if ongoing payments on the $100,000 outstanding amount is deducted from the lump sum paid.
In situations where an individual has an account-based pension with a large taxable component and no tax dependants, using proceeds from the account-based pension to pay lump sum payments can reduce the tax paid on lump sum superannuation death benefits.

Planning considerations:

  • Ruth and Ricardo will have access to less capital if they paid a lump sum. While a lump sum can be paid at any time after Ricardo enters into an accommodation agreement with the aged care home, having the lump sum refunded to them while Ricardo resides there is at the discretion of the home.
  • The lump sum payment will be refunded to Ricardo’s estate on his death and distributed according to his will. Ruth and Ricardo will need to ensure this is still in line with their estate planning goals.
  • Ongoing accommodation payment deductions from the lump sum will reduce the amount refunded on vacating the aged care home. The reduced lump sum also means ongoing payments will increase.
  • If Ruth and Ricardo had sold assets with capital growth, for example shares and/or an investment property, there can be capital gains tax implications. Additionally, they will no longer benefit from any future income and/or growth from those assets.
  • In situations where an individual has an account-based pension with a large taxable component and no tax dependants, using proceeds from the account-based pension to pay lump sum payments can reduce the tax paid on lump sum superannuation death benefits.

Strategy 2 – Selling the former home

Where there are no existing assets other than the former home, the home can be sold (assuming there are no other reasons to retain it) to fund the lump sum accommodation payment. These scenarios typically leaves the individual with a large capital surplus creating further advice opportunities for the investment of these funds.

Case study – Ruth and Ricardo (part 2)

Where there are no existing assets other than the former home, the home can be sold (assuming there are no other reasons to retain it) to fund the lump sum accommodation payment.

Ricardo has passed away and Ruth is now finding it difficult to manage on her own. She has decided to move into an aged care home which also has a published price of $500,000. Based on Ricardo’s experience while he was in the aged care home, Ruth expects that she will need $50 per week for miscellaneous expenses in addition to paying for her aged care fees.

When Ricardo passed away his $400,000 lump sum accommodation payment was bequest to his adult children according to his will.

Ruth was left with the home ($900,000) and $50,000 in cash. She also has $10,000 in personal assets and is now eligible for the maximum rate of Age Pension. 

Table 2 compares cash flow outcomes for Ruth if she: 

  • keeps her former home and pays accommodation entirely as ongoing payments;
  • sells her former home and uses $500,000 from the proceeds to pay a lump sum accommodation payment and invests the surplus $450,000 in cash and term deposits earning 3% interest; and
  • instead invests $400,000 of the $450,000 surplus capital in Challenger CarePlus.

Table 2 – Keeping vs selling the home

Cash flow (Year 1) Keep home $500k as ongoing payments $50k cash Sell home $500k as lump sum $450k cash/term deposits Sell home $500k as lump sum $400k CarePlus $50k cash
Age Pension $23,598  $18,846 $21,662
Interest income  $1,500 $13,500 $1,500
CarePlus income  n/a n/a $12,187
Misc. expenses  -$2,600 -$2,600 -$2,600 
Net cash flow before care fees  $22,498
$29,746  $32,749 
Basic daily care fee  $18,308  $18,308  $18,308 
Means-tested care fee  $602  $15,980  $13,472 
Accommodation payments  $28,850  $0  $0 
Total aged care fees  $47,760  $34,288  $31,780 
Estimated tax  $0  $0  $0 
Cash flow surplus/shortfall  -$25,262  -$4,542  $969 

Assumptions: Centrelink and aged care rates and thresholds as at 20 March 2018. CarePlus rates as at 23 March 2018 for an 86 female, no adviser fees.

Cash flow observations:

  • If Ruth retains her home, it will be exempt under the Centrelink/DVA Asset Test for a period of two years from her date of entry. As Ruth has very little assets outside the home, she will be eligible for the maximum rate of Age Pension for a single (currently $23,598 per annum).
  • If Ruth decides to sell her home and pay a lump sum payment of $500,000, Ruth will be left with $450,000 in cash, reducing her Age Pension from $23,598 to $18,846 per annum. Although Ruth accesses the higher non-homeowner Asset Test threshold ($456,750 for a single) after the sale of her home, deemed income from her financial assets causes a reduction in her Age Pension under the Income Test.
  • Ruth’s means-tested care fee increases from $602 to $15,980 after the sale of her home due to the increase in assessable assets under the aged care means test. This is because the assessed asset value of her former home is capped at $165,2712 (as at 20 March 2018) if she retains her home. However on the sale of the home, the full value of $900,000 is assessed (lump sum accommodation payments are exempt under the Centrelink/DVA means tests, but counted under the aged care means test).
  • The reduction in Age Pension and increase in the means-tested care fee is more than offset from the reduction in ongoing accommodation payments and the increase in interest income, improving overall cash flow by $20,720 (from a shortfall of $25,262 to a shortfall of $4,542).
  • Cash flow can be further improved if Ruth invests some of her surplus capital in an investment, such as Challenger’s CarePlus, that interacts more efficiently with the Centrelink/DVA and aged care means tests. The efficient interaction with the means tests increases Ruth’s Age Pension from $18,846 to $21,662 per annum and reduces her means-tested care fee from $15,980 to $13,472 providing her with a positive cash flow outcome.

For more information on Challenger CarePlus, contact your Challenger Business Development Manager.

Strategy 3 – Renting the former home

Renting the former home can help with funding ongoing accommodation payments where the former home cannot be sold. For example, the individual may want to retain the home within the family or there may be a family member who is occupying the home.

Previously, rental income could have been exempted from the Centrelink/DVA Income Test and/or the aged care means test if the individual also paid ongoing payments3 . However, since 1 January 2017 these exemptions have been abolished with grandfathering provisions applied to those who entered residential aged care before this date.

Net rental income for individuals entering residential aged care on or after 1 January 2017 will be assessed under both the Centrelink/DVA Income Test and the aged care means test.

Additionally, after two years4 the value of the home will be assessed under the Centrelink/ DVA Asset Test. 

This means renting the home has become less effective at improving cash flow outcomes and in many cases (where the individual has little other assets) other strategies will need to be considered to create positive cash flow positions. Other strategies can include:

  • the Centrelink pension loan scheme;
  • a loan from a family member; and
  • accessing equity from the home.

Case study – Kevin (renting the home)

Renting the former home can help with funding ongoing accommodation payments where the former home cannot be sold.

Kevin is single and is on the maximum rate of Age Pension. His family members have been caring for him for the past few years but are unable to continue to do so due to his deteriorating health.

They have located a suitable aged care home for Kevin where he can receive the level of care he needs. The aged care home has a published price of $400,000.

Kevin owns his home (worth $800,000) that he and his family have lived in for many years. He does not want to sell his home, and will leave this home to his only child Tim on his death. However, he is comfortable to have the home rented out to help fund aged care fees.

Kevin also has $10,000 in personal assets as well as $10,000 in cash.

Table 3 compares cashflow outcomes for Kevin if he:

  • did not rent out his home; and
  • rent his home for $500 per week.
Cash flow (Year 1) $400k as ongoing payments Rent home $400k as ongoing payments
Age Pension  $23,598  $12,694 
Interest income  $0  $0 
Rent income  $0  $26,000 
Misc. expenses  -$2,600 -$2,600 
Net cash flow before aged care fees  $20,998  $36,094 
Basic daily care fee  $18,308  $18,308 
Means-tested care fee  $0  $5,668 
Accommodation payments  $23,080  $23,080 
Total aged care fees  $41,388  $47,056 
Estimated tax  $0  $294 
Cash flow surplus/shortfall  -$20,390  -$11,256 

Assumptions: Centrelink and aged care rates and thresholds as at 20 March 2018.

Cashflow observations:

  • If Kevin does not rent out his former home, his annual cash flow shortfall amounts to $20,390.
  • If Kevin rents his home for $500 per week ($26,000 per annum), this income is assessed under the Centrelink/DVA and aged care means tests, reducing his Age Pension and increasing his means-tested care fee. Overall, this lead to an improvement in his cash flow of $9,134 (from a shortfall of $20,390 to a shortfall of $11,256).

Planning considerations:

  • As Kevin has very little other assets to fund his cash flow shortfall, additional strategies will need to be considered (see strategies 4, 5 and 6).
  • Renting the family home can have land tax implications.
  • Where the home is rented, capital gains tax may apply on the sale of the home. If it is sold within six years, the individual can choose to have the home treated as their main residence and access the main residence CGT exemption.
  • There is usually a need to renovate the home before it can be rented out. Additionally, Kevin may experience periods where the home is vacant which can impact his cash flow.
  • Additional income tax may become payable when the net medical expenses tax offset is completely phased out (the 2018/19 financial year is the final year individuals can access this offset).
  • The full value of Kevin’s home ($800,000) will be assessed after two years from his date of entry which can reduce Kevin’s Age Pension at that time.

Strategy 4 – Pension loan scheme

Part-pensioners and some self-funded retirees who own their home in Australia can access the non-taxable pension loan scheme. It is available to those who are not entitled to a maximum rate of pension, or any pension, because of the Income Test or Assets Test (but not if they are ineligible under both tests).

Under the scheme, individuals (or their partner) who are Age Pension age, can obtain a loan (secured against the individual’s home) that will increase their fortnightly pension payment from a part-rate or nil rate, up to the maximum pension rate.

Funds can be used to supplement other income sources to fund ongoing accommodation payments as well as other aged care fees.

Importantly, the loan amount is not assessed as income under the Centrelink/DVA and aged care means tests.

Case study – Kevin (renting the home and the pension loan scheme)

Part-pensioners and some selffunded retirees who own their home in Australia can access the non-taxable pension loan scheme. It is available to those who are not entitled to a maximum rate of pension, or any pension, because of the Income Test or Assets Test (but not if they are ineligible under both tests).

In Kevin’s scenario, he can improve his cash flow position if he applies for the pension loan scheme to top-up his Age Pension to the maximum rate.

Table 4 compares cash flow outcomes for Kevin if he:

  • rents his home for $500 per week;
  • rents his home for $500 per week as well as apply for the Centrelink pension loan scheme; and
  • rents his home for $500 per week as well as apply for the Centrelink pension loan scheme (two years after his date of entry when the home exemption expires). 

Table 4 – Renting the home and the Centrelink pension loan scheme

Cash flow Rent home $400k as ongoing payments (Year 1) Rent home $400k as ongoing payments Pension loan scheme (Year 1) Rent home $400k as ongoing payments Pension loan scheme (Year 3)
Age Pension $12,694 $23,598 $24,793
Interest income $0 $0 $0
Rent income $26,000 $26,000 $27,316
Misc. expenses -$2,600 -$2,600 -$2,732
Net cash flow before aged care fees $36,094 $46,998  $49,377
Basic daily care fee $18,308 $18,308 $19,235
Means-tested care fee $5,668 $5,668 $0
Accommodation payments $23,080 $23,080 $23,080
Total aged care fees $47,056 $47,056 $42,315
Estimated tax $294 $294 $0
Cash flow surplus/shortfall -$11,256 -$352 $7,062

Assumptions: Centrelink and aged care rates and thresholds as at 20 March 2018 and are indexed by CPI of 2.50% for later years. Cash flow shortfalls are assumed to be funded from cash. Net home value assumed to exceed the upper Asset Test threshold for a single non-homeowner in year three.

Cashflow observations:

  • Applying for the pension loan scheme has topped up Kevin’s Age Pension entitlements by $10,904 to the maximum rate of $23,598 reducing his shortfall to $352.
  • Kevin’s means-tested care fee is not impacted as the Age Pension top-up amount is not assessed under the aged care means test.
  • The Age Pension top-up is not taxable, leaving estimated tax of $294 unchanged.
  • In year three, Kevin’s home value (less any debt) is assessed, reducing Kevin’s Age Pension to nil at that time. The entire Age Pension top-up at that time will comprise of the loan. However, the reduction in Age Pension will also reduce assessable income under the aged care means test, reducing the means-tested care fee to nil. Overall, his cash flow improves to a surplus of $7,062 in year three (Kevin can consider reducing the Age Pension top-up amount at that time).

Planning considerations:

  • The debt from the pension loan scheme can be repaid at any time or the debt can be left, including the accrued interest, to be recovered from the individual’s estate.
  • Interest (at a rate of 5.25% as at 28 March 2018) on the loan is compounded fortnightly and will increase the loan size over time until the loan is repaid.
  • The value of the home will reduce over time by the outstanding loan amount. This should be factored into estate plans.

Strategy 5 – Loan from family members

Family members may be able to provide financial assistance to fund lump sum and/or ongoing accommodation payments. This provides time for the family to sell the former home particularly where the former home was a retirement village or where markets are unfavourable.

If a lump sum is paid by the family member, the amount is exempt under the Centrelink/DVA pension means tests for the aged care resident but is assessed under the aged care means test.

Importantly, even in situations where a loan agreement has been entered into with the family member, the debt does not reduce the assessed asset value under the aged care means test. This can lead to an increase in the means-tested care fee for the aged care resident.

In addition, where the loan is not secured against the home, the full value of the home will be assessed under the Centrelink/DVA Assets Test after the two-year exemption period. 

Case study – Kevin (renting the home and a lump sum paid by a family member)

Family members may be able to provide financial assistance to fund lump sum and/or ongoing accommodation payments. This provides time for the family to sell the former home particularly where the former home was a retirement village or where markets are unfavourable.

Returning to Kevin’s scenario. Keven’s son, Tim, decides to pay a lump sum of $400,000 for Kevin’s accommodation using his own funds. They did not believe a loan agreement was necessary as Tim is the only child and will inherit all of Kevin’s assets.

Table 5 compares cash flow outcomes for Kevin if he:

  • rents his home for $500 per week;
  • rents his home for $500 per week and Tim pays $400,000 as a lump sum accommodation payment; and
  • rents his home for $500 per week and Tim pays $400,000 as a lump sum accommodation payment (two years after his date of entry when the home exemption expires).

Table 5 – Renting the home and a lump sum from family members

Cash flow Rent home $400k as ongoing payments (Year 1) Rent home $400k from family $400k as lump sum (Year 1) Rent home $400k from family $400k as lump sum (Year 3)
Age Pension  $12,694  $12,694  $0 
Interest income  $0  $0
$0 
Rent income  $26,000  $26,000  $27,316 
Living expenses  -$2,600  -$2,600  -$2,732 
Net cash flow before care fees  $36,094 $36,094  $24,584
Basic daily care fee  $18,308
$18,308  $19,235  
Means-tested care fee  $5,668  $11,549  $6,193
Accommodation payments $23,080  $0  $0 
Total aged care fees  $47,056
$29,857  $25,428 
Estimated tax  $294  $294  $0
Cash flow surplus/shortfall  -$11,256
$5,943  -$844 

Assumptions: Centrelink and aged care rates and thresholds as at 20 March 2018 and are indexed by CPI of 2.50% for later years. Cash flow surplus is assumed to be invested in cash earning nil interest.

Cash flow observations:

  • Tim’s lump sum payment of $400,000 towards Kevin’s accommodation increased his assessable assets under the aged care means test and subsequently increases his meanstested care fee by $5,881 (from $5,668 to $11,549). However, the lump sum payment reduced the ongoing payments to nil, providing Kevin with a positive cash flow position.
  • As Tim’s loan was not secured against Kevin’s home, the full value of Kevin’s home ($800,000) will be assessed after two years from his date of entry, reducing Kevin’s Age Pension to nil at that time. However, the reduction in Age Pension will also reduce assessable income under the aged care means test, reducing the means-tested care fee to $6,193 from $11,549.

Planning considerations:

  • To protect family members who are providing financial support, a formal loan agreement should be considered. This can assist with reducing the risk of disputes on the death of the aged care resident, particularly where lump sum payments are refunded to the estate of the deceased.
  • The opportunity cost for the family member providing the assistance should be considered. For example, it may not be worthwhile for the family member to borrow funds to then on-lend this to the aged care resident to make a lump sum payment even if the family member can borrow the funds a lower rate than the resident’s MPIR. This is because, in addition to the increase in the means-tested care fee for the person in the aged care home, there may be Centrelink implications for the family member lending the funds. Money lent is assessed by Centrelink/DVA as a financial asset meaning this arrangement can increase assessable assets for the family member if their loan was secured against their family home, which is an exempt asset. Higher assessable assets can reduce any Age Pension the family member receives or reduce Newstart allowance to nil if assets exceed the asset threshold.

Strategy 6 – Accessing equity from the home

Where family members do not have the capacity to provide financial assistance, accessing equity in the home using an equity release loan can provide the funds for lump sum and/or ongoing accommodation payments.

Like the case with a loan from a family member, home equity release loans can help with providing some flexibility and time for the family to sell the former home.

Case study – Kevin (renting the home and accessing equity from the home)

Where family members do not have the capacity to provide financial assistance, accessing equity in the home using an equity release loan can provide the funds for lump sum and/or ongoing accommodation payments.

Table 6 compares cash flow outcomes for Kevin if he:

  • rents his home for $500 per week;
  • rents his home for $500 per week and takes out an equity release loan of $250,000 secured against his home that he uses to pay a lump sum accommodation payment; and
  • rents his home for $500 per week and takes out an equity release loan of $250,000 secured against his home that he uses to pay a lump sum accommodation payment (two years after his date of entry when the home exemption expires).

Table 6 – Renting the home and an equity release loan

Cash flow Rent home $400k as ongoing payments (Year 1) Rent home $250k equity release $250k as lump sum $150k as ongoing payments (Year 1) Rent home $250k equity release $250k as lump sum $150k as ongoing payments (Year 3)
Age Pension $12,694 $12,694
$13,334 
Interest income $0  $0  $0 
Rent income $26,000  $26,000  $27,316 
Misc. expenses -$2,600  -$2,600  -$2,732 
Net cash flow before aged care fees
$36,094  $36,094
$37,918
Basic daily care fee $18,308  $18,308  $19,235
Means-tested care fee
$5,668  $8,541  $8,708 
Accommodation payments
$23,080  $8,655
$8,655
Total aged care fees
$47,056  $35,504  $36,598 
Estimated tax $294  $294  $2,929 
Cash flow surplus/shortfall
-$11,256
$296
-$1,609

Assumptions: Centrelink and aged care rates and thresholds as at 20 March 2018 and are indexed by CPI of 2.50% for later years. Cash flow surplus is assumed to be invested in cash earning nil interest. Net home value assumed to be $577,844 in year three.

Cash flow observations:

  • Similar to the situation where a family member pays a lump sum accommodation payment, the lump sum payment from the equity release loan increased Kevin’s assessable assets under the aged care means test and subsequently increased his means-tested care fee by $2,873. However, the lump sum payment reduced the ongoing payments by $14,425, providing Kevin with a positive cash flow position.
  • Interest from the equity release loan does not reduce the assessed rental income under the Centrelink/DVA and aged care means tests as the loan was not obtained for the purpose of purchasing an investment property. As such, Kevin’s Age Pension remains at $12,694.
  • After the two-year exemption period, the assessed asset value of the home is reduced by the loan amount helping Kevin to retain his Age Pension.
  • Tax has increased in the third year due to the net medical expenses tax offset being completely phased out (the 2018/19 financial year is the final year individuals can access this offset).

Planning considerations:

  • The reduction in ongoing payments should be weighed against the increase in the meanstested care fee as well as the cost (interest) of the equity release loan. If the cost of the loan is the same as the MPIR, the added cost of an increased means-tested care fee can mean that it is more worthwhile to draw on the loan regularly (where possible) as and when needed to meet cash flow shortfalls.
  • Interest on equity release loans are usually capitalised, which helps with cash flow but increases the loan amount over time.
  • The value of the home will reduce by the loan amount which should be reflected in his estate.

Summary

In this article we explored six strategies to fund accommodation payments and their key technical and practical considerations that can be useful in discussions with clients prior to implementation.


1As at April 2017, Aged Care Financing Authority, Fifth report on the funding and financing of the aged care sector July 2017.

2It will be exempt under the aged care means test if the former home is occupied by a protected person. A protected person includes a spouse or dependent child, carer eligible for an income support payment who has been living in the home for the past two years or close relative eligible for an income support payment who has been living in the home for the past five years.

3Residents who first entered residential aged care prior to 1 January 2015 were able to have their rent income exempt under the Age Pension and aged care means tests. Those who entered on or after 1 January 2015 but before 1 January 2016 were only able to have their rent income exempt under the Age Pension Income Test.

4For couples, the two-year period commences from the day the last person enters residential aged care. Those who entered residential aged care prior to 1 January 2017 can have the value of their home exempt indefinitely under the Asset Test if they paid ongoing accommodation payments and rent the home.

 

The information contained in this update is current as at 16 April 2018 unless otherwise specified and is provided by Challenger Life Company Limited ABN 44 072 486 938, AFSL 234670 (Challenger), the issuer of Challenger annuities (Annuity(ies)). It is intended solely for licensed financial advisers and this update must not be passed on to retail clients. The examples shown are for illustrative purposes only and are not a prediction or guarantee of any particular outcome. This information is not intended to be financial product advice and has been prepared without taking into account any person’s objectives, financial situation or needs. Each person should, therefore, consider its appropriateness having regard to these matters and the information in the product disclosure statement (PDS) for the applicable Annuity before deciding whether to acquire or continue to hold an Annuity. A copy of the PDS is available at www.challenger.com.au or by contacting our Adviser Services Team on 1800 621 009. This document may include statements of opinion, forward looking statements, forecasts or predictions based on current expectations about future events and results. Actual results may be materially different from those shown. This is because outcomes reflect the assumptions made and may be affected by known or unknown risks and uncertainties that are not able to be presently identified. Neither Challenger nor its related bodies corporate nor any of their employees receive any specific remuneration for any advice provided in respect of the Annuity. Some or all of Challenger group companies and their directors may benefit from fees and other benefits received by another group company. Any taxation, Centrelink and/or Department of Veterans’ Affairs illustrations are based on current law at the time of writing which may change at a future date. Neither Challenger, nor any of its officers or employees, is a registered tax (financial) adviser under the Tax Agent Service Act and it is not licensed or authorised to provide tax or social security advice. Before acting, we strongly recommend that prospective investors obtain financial product advice, as well as taxation and applicable social security advice from a professional and registered tax agent who can take into account the investor’s individual circumstances.