Can you still rent the former home?

The rules for renting your former home became less favourable from 1 January 2016 but this does not mean you have to sell your former home to fund a move into aged care. You will just need to do the numbers more carefully.

The new rules

If you moved into residential care before 1 January 2016 and chose to pay some daily accommodation payment (DAP), any rental income you receive on your former home is exempt for both Centrelink/DVA and aged care calculations. This helped to maximise your pension and minimise your fees.

But if the move occurs on or after 1 January 2016 the rental income from your former home is now included as assessable income when calculating aged care fees. An exemption does still apply when calculating your age/service pension, but only if you pay some of your accommodation payment as a DAP.

Case study

Elmer moves into residential care on 1 February 2015. His home is worth $520,000 and he has $30,000 in the bank. He rents his home for $24,000 per year after all expenses and pays his $300,000 accommodation payment fully as a DAP.

The rental income is exempt for Centrelink purposes but is assessable when calculating aged care fees. Including the full age pension, his annual income totals $47,067 and daily care fees are $27,954. He also pays $18,420 per year in DAP (at 6.14%), so his total fees are just less than his income.

However, with minimal cash reserves there is little margin for error or to cover any contingencies or personal expenses. Reverse mortgages and home equity options could help to manage cashflow and provide cash reserves.

If Elmer had moved into care before 1 January 2016 his care fees would have only been $17,469 per year as the rental income would have been exempt and a means-tested fee would not have applied.

The new rules have increased Elmer’s care fees by $10,485 but potentially, with careful management he could still keep his former home.