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

Raising the GST to 15%

Treasurer Jim Chalmers aims to tackle tax reform but faces challenges. Previous reviews struggled due to political sensitivities, highlighting the need for comprehensive and politically feasible change.

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.

Here's what should replace the $3 million super tax

With Div. 296 looming, is there a smarter way to tax superannuation? This proposes a fairer, income-linked alternative that respects compounding, ensures predictability, and avoids taxing unrealised capital gains. 

9 winning investment strategies

There are many ways to invest in stocks, but some strategies are more effective than others. Here are nine tried and tested investment approaches - choosing one of these can improve your chances of reaching your financial goals.

The rubbery numbers behind super tax concessions

In selling the super tax, Labor has repeated Treasury claims of there being $50 billion in super tax concessions annually, mostly flowing to high-income earners. This figure is vastly overstated.

With markets near record highs, here's what you should do with your portfolio

Markets have weathered geopolitical turmoil, hitting near record highs. Investors face tough decisions on valuations, asset concentration, and strategic portfolio rebalancing for risk control and future returns.

Latest Updates

Investment strategies

Finding income in an income-starved world

With term deposit rates falling, bonds holding up but with risks attached, and stocks yielding comparatively paltry sums, finding decent income is becoming harder. Here’s a guide to the best places to hunt for yield.

Economy

Fearful politicians put finances at risk

A tearful Treasury chief, a backbench rebellion, and crashing bonds. What just happened in the UK and why could Australia’s NDIS be headed for the same brutal fiscal reality?

Shares

Investing at market peaks: The surprising truth

Many investors are hesitant to buy into a market that feels like it’s already climbed too far, too fast. But what does nearly a century of market history suggest about investing at peaks?

Shares

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?

Investment strategies

Will stablecoins change the way we pay for things?

Stablecoins have been hyped as a gamechanger for the payments industry. But while they could find success in certain niches, a broader upheaval of Visa and Mastercard's payments dominance looks unlikely.

Infrastructure

An investing theme you can bet on for the next 30 years

Investors view infrastructure as a defensive asset class rather than one with compelling growth prospects. These five tailwinds for demand over the coming decades suggest that such a stance could be mistaken.

Investment strategies

A letter to my younger self: investing through today's chaos

We are trading through one of history's most confounding market environments. One day, financial headlines warn of doomsday scenarios. The next, they celebrate a new golden age. How can investors keep a clear head?

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.