Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 150

Family home no longer the sacred cow

On 1 January 2016, the government changed the aged care means test for people who choose to keep and rent out their former home, such that the rent is now included. However, the home, and any rent received, are still exempt from the calculation of pension entitlement where the resident is paying a Daily Accommodation Contribution (DAC) or a Daily Accommodation Payment (DAP) … for now.

An example of home and rent assessment

Among our clients, we have already seen the impact of the change. The most interesting was a couple where the husband had been living in care for some time and his wife moved into the same facility this year. They decided to keep and rent out their home to assist in meeting the cost of care.

The husband is paying a DAP and moved into care prior to 1 January 2016. He meets the rent exemption criteria so his half of the rent was not included when calculating the means-tested care fee. Paying a DAP also meant that the rent and the asset value of the house remain exempt when calculating pension entitlement. Because his wife is no longer living in the home, he has $159,423 of the house asset value included in the calculation of his means-tested care fee.

The wife entered care in 2016 and so her half of the rent is included in the calculation of her means-tested care fee together with the capped asset value of $159,423 for the house. As she is also paying a DAP, the asset and rent will still be exempt for pension purposes.

This is certainly different to the way in which assets and income of a couple have been assessed historically, but changing means tests is something we can expect to see more of as the government tries to manage the expense of an ageing population.

Further changes are coming

In fact, the next round of changes could be less than a year away. The government's Mid-Year Economic and Fiscal Outlook (MYEFO) included a policy decision to include rent from the former home in the calculation of pension entitlement from 1 January 2017. The current asset test exemption on the value of the home where the home is rented and aged care accommodation costs are paid on a periodic basis would also be removed.

Beyond this we are only a hop, skip and a jump away from having some or all of the family home included in the pension assets test. Of course that’s easy to say but hard to do.

The difficulty lies in two issues:

  • the fact that house prices across the country vary widely, both from one capital city to another and between cities and regional areas, and
  • how people will get access to the capital tied up in the family home to provide themselves with the cash flow they need.

Let’s say the government included the value of the home in the pension assets but increased the asset test thresholds by $500,000.

In Sydney, Melbourne, Brisbane and Perth where the median house price is above $500,000 pensioners would see a reduction to their entitlement, with the most significant reduction being in Sydney where the median price is currently around $885,000.

In Adelaide and Hobart where the median price is below $500,000 some people would be able to exempt the full value of their house and some of the assets outside, potentially receiving more pension than they do now. The median house price in Hobart is only $350,000.

Accessing capital in the home

From the point of view of accessing the capital in the home, most people naturally think of reverse mortgages. But many reverse mortgage products are not available to people under the age of 70. The few products that enable people to borrow from the age of 60 typically set the amount someone can borrow between 15% to 20% with an increase of 1% each year thereafter. Let’s say the person was 65 with a $750,000 house.

The current Pension Loan Scheme (where people can ‘top up’ their pension to the maximum entitlement by creating a debt with the government secured by the home) may prove to be much more popular. The current interest rate for the Pension Loan Scheme is 5.25% with interest compounding fortnightly.

It is not an easy problem to solve, but a solution will be found and as always there will be winners and losers.

From an aged care perspective, removing the exemptions that apply to the family home and any rent is likely to encourage residents to pay for their cost of aged care accommodation by lump sum. In fact, beds that have a higher price Refundable Accommodation Deposit (RAD) may become the bed of choice as residents try to preserve capital and maintain their pension entitlement. Unfortunately for the rest, this is likely to create upward pressure on prices.

 

Rachel Lane is the Principal of Aged Care Gurus and oversees a national network of financial advisers specialising in aged care. This article is for general educational purposes and does not address anyone’s specific needs.

 

RELATED ARTICLES

Should I maximise my pension by investing in the family home?

12 tips for ‘aged care season’

Biggest change in the Aged Care Interest Rate since the GFC

banner

Most viewed in recent weeks

Which generation had it toughest?

Each generation believes its economic challenges were uniquely tough - but what does the data say? A closer look reveals a more nuanced, complex story behind the generational hardship debate. 

100 Aussies: seven charts on who earns, pays, and owns

The Labor government is talking up tax reform to lift Australia’s ailing economic growth. Before any changes are made, it’s important to know who pays tax, who owns assets, and how much people have in their super for retirement.

The best way to get rich and retire early

This goes through the different options including shares, property and business ownership and declares a winner, as well as outlining the mindset needed to earn enough to never have to work again.

A perfect storm for housing affordability in Australia

Everyone has a theory as to why housing in Australia is so expensive. There are a lot of different factors at play, from skewed migration patterns to banking trends and housing's status as a national obsession.

Chinese steel - building a Sydney Harbour Bridge every 10 minutes

China's steel production, equivalent to building one Sydney Harbour Bridge every 10 minutes, has driven Australia's economic growth. With China's slowdown, what does this mean for Australia's economy and investments?

Supercharging the ‘4% rule’ to ensure a richer retirement

The creator of the 4% rule for retirement withdrawals, Bill Bengen, has written a new book outlining fresh strategies to outlive your money, including holding fewer stocks in early retirement before increasing allocations.

Latest Updates

Economy

The ‘priced out generation’ and what they should do about it

A fiery interview on housing exposed deep generational divides, sparking youth outrage and political backlash. As homeownership drifts out of reach, young Australians face a choice: fight the system - or redefine success.

Taxation

Maybe it’s time to consider taxing the family home

Australia could unlock smarter investment and greater equity by reforming housing tax concessions. Rethinking exemptions on the family home could benefit most Australians, especially renters and owners of modest homes.

Superannuation

Meg on SMSFs: Ageing and its financial challenges

Ageing SMSF members can face issues funding their pension income as cash reserves dwindle. Potential solutions include involving adult children in contributions to secure future financial stability.

Economy

US earnings season was almost too good to be true

The second quarter US earnings season has wrapped up, with a record 82% of S&P 500 firms beating earnings estimates. As tailwinds fade, Q3 may reveal whether AI momentum can offset rising economic headwinds. 

Gold

Does gold still deserve a place in a diversified portfolio?

9,000 years and no devaluations later, gold is the world’s most enduring store of value. It remains attractive as the value of several paper currencies, including the US dollar, are threatened by deficits and rising debt.

Shares

Checking in on the equity market's silent engine

Consumer spending directly impacts corporate earnings, sector performance and market sentiment. The latest data from different economies uncover risks and pockets of opportunity for investors.

Fixed interest

6 key themes driving bond markets

The Fed could soon be prompted to join other central banks in cutting interest rates. This would have ripple effects across global fixed income markets and provide an especially attractive backdrop for emerging market bonds.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.