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.

7 examples of how the new super tax will be calculated

You've no doubt heard about Division 296. These case studies show what people at various levels above the $3 million threshold might need to pay the ATO, with examples ranging from under $500 to more than $35,000.

The revolt against Baby Boomer wealth

The $3m super tax could be put down to the Government needing money and the wealthy being easy targets. It’s deeper than that though and this looks at the factors behind the policy and why more taxes on the wealthy are coming.

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

Are franking credits hurting Australia’s economy?

Business investment and per capita GDP have languished over the past decade and the Labor Government is conducting inquiries to find out why. Franking credits should be part of the debate about our stalling economy.

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. 

Latest Updates

Investment strategies

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.

Planning

Super, death and taxes – time to rethink your estate plans?

The $3 million super tax has many rethinking their super strategies, especially issues of wealth transfer on death. This reviews the taxes on super benefits and offers investment alternatives.

Taxation

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.

Shares

The megatrend you simply cannot ignore

Markets are reassessing the impact of AI, with initial euphoria giving way to growing scepticism. This shift is evident in the performance of ASX-listed AI beneficiaries, creating potential opportunities.

Gold

Is this the real reason for gold's surge past $3,000?

Concerns over the US fiscal position seem to have overtaken geopolitics and interest rates as the biggest tailwind for gold prices. Even if a debt crisis doesn't seem likely, there could be more support on the way.

Exchange traded products

Is now the time to invest in small caps?

With further RBA rate cuts forecast this year, small caps may be key beneficiaries. There are quality small cap LICs and LITs trading at discounts to net assets, offering opportunities for astute investors.

Strategy

Welcome to the grey war

Forget speculation about a future US-China conflict - it's already happening. Through cyberwarfare and propaganda, China is waging a grey war designed to weaken democracies without firing a single shot.

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.