It can be difficult to plan, either financially or emotionally, for the move into an aged care facility. Whether the move into care is for yourself or a family member, there are a lot of questions and decisions which need to be addressed. Making the wrong decision could result in a loss of age pension, increased aged care costs and a reduced estate to be passed onto the next generation. This article looks at the current rules around aged care costs.
Aged care homes charge a range of fees to cover care, accommodation costs and living expenses. These can vary enormously between facilities and from resident to resident. The following are the four basic fees associated with aged care:
• Basic daily fees – Residents in aged care can be asked to pay a basic daily fee as a contribution towards accommodation costs and living expenses. This includes items such as meals and refreshments, cleaning, laundry, heating and cooling. The basic daily fee for all permanent residents who enter an aged care home is 85 per cent of the annual single basic age pension.
• Contribution towards accommodation– There are two types of accommodation charges which may apply:
1 Accommodation contribution – For clients who have some assets, they will be required to make a contribution to the cost of maintaining the aged care accommodation. This amount will be variable depending on the operation of the means testing arrangements, but will never exceed a certain figure (currently $53.84 per day).
2 Accommodation payment – Residents of reasonable means (where their means tested amount exceeds the $53.84 per day figure) will be required to pay the accommodation provider’s fixed costs, which are advertised on MyAgedCare.gov.au Figures listed on this site are set by each aged care facility.
Importantly, the client has full control over whether they pay their accommodation costs by a lump sum (known as a Refundable Accommodation Contribution/Deposit), via daily payments (knows as Daily Accommodation Contribution/Payment) or a combination thereof. An aged care provider cannot force the client to make their accommodation payments in any specific way.
• Means-tested care fee – Residents in permanent aged care may be asked to pay a fee in addition to the basic daily fee. The amount payable depends on the residents’ level of assets, their income and the level of care required. This contributes towards the cost of care. If a client is paying an Accommodation Contribution, they will not be required to pay a means-tested care fee.
• Extra service fees – Some aged care facilities provide extra services which can be offered across the whole facility or to a designated part. Extra service means that the facility will provide the residents with a higher standard of accommodation and/or services. Examples of extra services could be a bigger room, a wider choice of meals or wine with meals. This does not mean that the resident will get a higher level of care, as all homes have to provide the same level of care.
Renting out the family home
Retaining and renting the family home could provide an exemption for social security purposes, provided:
1. the resident is paying a Daily Accommodation Contribution/Payment (even if they have also partially paid a lump sum)
2. it is rented out.
If these criteria are satisfied, the asset value of the family home and the income (rent) will be exempt from age pension assessment. However, the value of the property will remain assessable up to a cap (currently $157,987.20) for the calculation of aged care fees. The rental income will also be included for aged care income testing if the person moved into care after 1 January 2016, whilst residents in care before this date benefit from the rental income being excluded in calculation of their aged care costs.
It should be noted the current Government has shown an intention to remove this exemption from social security means testing – however no legislation has been introduced to implement this change at the time of writing.
When retaining and renting the family home, it is important to consider the income tax impact (as the rental income is assessable for tax purposes), the capital gains implications and whether renovations are required.
Seeking advice from your financial planner or an aged care specialist will ensure that you can make the right financial decisions. This could make a difference to your or a loved one’s overall quality of life by being able to afford the standard of care that is required. Call us now on 02 4926 2300