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

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.

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.

Simple maths says the AI investment boom ends badly

This AI cycle feels less like a revolution and more like a rerun. Just like fibre in 2000, shale in 2014, and cannabis in 2019, the technology or product is real but the capital cycle will be brutal. Investors beware.

Why we should follow Canada and cut migration

An explosion in low-skilled migration to Australia has depressed wages, killed productivity, and cut rental vacancy rates to near decades-lows. It’s time both sides of politics addressed the issue.

Are franking credits worth pursuing?

Are franking credits factored into share prices? The data suggests they're probably not, and there are certain types of stocks that offer higher franking credits as well as the prospect for higher returns.

Are LICs licked?

LICs are continuing to struggle with large discounts and frustrated investors are wondering whether it’s worth holding onto them. This explains why the next 6-12 months will be make or break for many LICs.

Latest Updates

A nation of landlords and fund managers

Super and housing dwarf every other asset class in Australia, and they’ve both become too big to fail. Can they continue to grow at current rates, and if so, what are the implications for the economy, work and markets?

Economy

The hidden property empire of Australia’s politicians

With rising home prices and falling affordability, political leaders preach reform. But asset disclosures show many are heavily invested in property - raising doubts about whose interests housing policy really protects.

Retirement

Retiring debt-free may not be the best strategy

Retiring with debt may have advantages. Maintaining a mortgage on the family home can provide a line of credit in retirement for flexibility, extra income, and a DIY reverse mortgage strategy.

Shares

Why the ASX is losing Its best companies

The ASX is shrinking not by accident, but by design. A governance model that rewards detachment over ownership is driving capital into private hands and weakening public markets.

Investment strategies

3 reasons the party in big tech stocks may be over

The AI boom has sparked investor euphoria, but under the surface, US big tech is showing cracks - slowing growth, surging capex, and fading dominance signal it's time to question conventional tech optimism.

Investment strategies

Resilience is the new alpha

Trade is now a strategic weapon, reshaping the investment landscape. In this environment, resilient companies - those capable of absorbing shocks and defending margins - are best positioned to outperform.

Shares

The DNA of long-term compounding machines

The next generation of wealth creation is likely to emerge from founder influenced firms that combine scalable models with long-term alignment. Four signs can alert investors to these companies before the crowds.

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.