Financial Costs of Elderly Housing

Cost of living allowance Reimbursement for lodging expenses Cost of medical care Extra service fee A fee that must be paid by every resident in order to cover the cost of living A means test determines eligibility; payments can be made either in a one-time lump sum, on a daily basis, or as a combination of the two. A daily fee that is based on one's means and helps cover the cost of ongoing medical care. Payment required to cover the cost of additional amenities and services in excess of the basic requirement At this time, the standard rate is $56 87 per day Up to in means-tested government assistance per household 14 per day available ('maximum accommodation supplement') Set at a maximum of $30,574 33 per year, with a maximum payout of ,378 over one's lifetime 49 Every service provider has the ability to offer supplemental assistance if the resident so desires. Some service providers have the status of dedicated extra service The resident is responsible for paying for these supplemental services in order to continue living in the facility.

The residents of residential care facilities for the elderly are charged a basic daily fee as a contribution toward day-to-day living expenses such as meals, cleaning, laundry, and heating and cooling. This fee is not based on a household's income. The maximum amount of the basic daily fee that can be charged to new residents is currently set at 85 percent of the rate of the single basic pension for the elderly. The price as of right now is $56 87 per day Every year on the 20th of March and 20th of September, the basic daily fee goes up in accordance with the increase in the rate of the age pension.

If a new resident is required to pay for their accommodation in accordance with the means test, they have up to 28 days after moving into an aged care facility to make a decision regarding whether they will pay a daily accommodation payment (also known as a "DAP"), a lump sum refundable accommodation deposit (also known as a "RAD"), or some combination of the two. In the event that a RAD is selected, the resident has up to six months after the date of entry to make the payment. This allows the resident to sell assets (if necessary) in order to help fund the payment, giving them more time. During this time, a DAP payment is made. To determine the DAP equivalent of the RAD that was provided, a rate up to the maximum permissible interest rate (which is currently 6%) will be used in the calculation. 31 percent as of the first day of October 2022) These payment options are applicable in any circumstance, regardless of the high or low level of care that is provided.

The following illustration illustrates one possible method of payment for accommodations that cost per day.

A DAP of $20 per day, with the remaining cost ( minus $20 = per day) paid as a lump sum RAD would result in the following calculation for the daily cost breakdown:

The difference between the price per day multiplied by 365 and the interest rate x 365 / 6 31% = $347,068

The resident will have the option of funding any DAP payable, from the RAD that they have paid to the provider. This option is available to the resident. In this scenario, the service provider will most likely raise the DAP by an amount equal to or greater than the amount necessary to counteract the effect of the diminishing RAD balance. The maximum amount of the RAD that a resident can be asked to pay must leave the resident with at least the minimum permissible asset level (currently $55,000). This level is calculated as 2 times the resident's annual income multiplied by their number of years as a resident. 25 times the rate of the basic pension for a single person of retirement age in effect at the time of entry, rounded down to the nearest $500

As its name suggests, the RAD is completely refundable upon departure from the residence, either to the individual or the individual's estate in the event of death (with the exception of any DAP amounts that may have been deducted from the RAD at the request of the resident).

Establishing and making public prices

It is mandatory for approved providers of elderly care homes to make public the current rates of accommodation payments they charge for the various room configurations that are on offer. They are required to present the DAP, the RAD, and one illustration of a payment that combines both of these components. In addition to this, a summary of the distinguishing characteristics of each distinct category of room must be provided.

These details should be easily accessible on the websites of service providers and in the documentation that is given to prospective residents and the families of those residents. It is also published on the My Aged Care website, which is run by the government, in order to make price comparisons easier.

Prices for lodging that are higher than the minimum required by law (which is currently ) The Aged Care Pricing Commissioner must give their approval before any price increases (above per day or a RAD of $550,000). The government provides a means-tested accommodation supplement to the elderly care provider, which is then used to subsidize the cost of accommodation. The maximum accommodation supplement (MAS) has been set at per week for all new residential aged care facilities that were completed on or after April 20, 2012, as well as for existing facilities that have undergone significant refurbishment on or after that date. 14 (beginning on the 20th of September 2022) A lower MAS rate is paid for properties with a longer history.

If it is determined that a resident is eligible to pay a MAS to the facility, and if the cost of accommodation charged by the home is set at the MAS, then the provider is not permitted to charge the resident any additional amount for their accommodation. When a resident is required to pay an amount that is lower than the MAS, the amount that they pay toward their accommodation is known as an accommodation contribution. It is referred to as an accommodation payment when the participant is responsible for paying the entire amount. There is no predetermined amount that must be paid for the accommodation contribution. It will change depending on the recipient's financial situation. As a consequence of this, the person receiving care may be required to increase the amount of a DAP or top off a RAD if the quarterly means testing results in a higher amount that is means tested. However, as long as the person receiving care continues to reside in a facility in which the cost of accommodation is determined by the MAS, the person cannot be required to make a payment toward their accommodation, even if their financial situation significantly improves. This ensures that they will never be required to pay more than what is required by the MAS.

Residents of approved nursing homes for the elderly and their providers can come to an agreement on a price that is lower than the list price.

The resident's obligation to contribute towards the cost of their ongoing health care is determined by the combined means testing of their assets and income, just like the obligation to contribute towards the cost of their accommodation. However, the daily means-tested amount is first applied toward the cost of accommodation, and any remaining funds after deducting the maximum accommodation supplement are applied toward a resident's health care expenses. In light of this, there is no obligation to pay a care fee if the amount subject to the means test is lower than or on par with the maximum accommodation supplement. If there is a fee to be paid, the resident is responsible for paying the amount that is the lesser of the means-tested amount and the amount that the government would otherwise pay for his or her care in the form of subsidy and primary supplements (i.e., the amount). e the expense associated with their care) The maximum amount that can be paid annually for care fees is $30,574. 33 per year, with a maximum payout of ,378 over one's lifetime 49 to protect care recipients who receive care for a period of time that is longer than the typical duration of care.

Residents who are in a class of care recipients that is specified from time to time in the subsidy principles are exempt from having to pay a means-tested care fee. This includes residents who are receiving respite care.

Residents who are in a class of care recipients that is specified from time to time in the subsidy principles are exempt from having to pay a means-tested care fee. This includes residents who are receiving respite care.

Extra service fees

On an opt-in or opt-out basis, additional services and amenities, including the provision of pay TV, wine with meals, and daily newspapers, are available to residents of all residential aged care facilities, for a fee that is to be negotiated with each individual resident.

A number of providers of elderly care have successfully applied for and been awarded dedicated extra service status. This additional service status may be assigned to the entire establishment or to just a select number of individual guest rooms. The extra service fee is not optional for residents who live in these dedicated extra service facilities; rather, it is a mandatory part of the rent.

Tests of the means

An evaluation of a resident's assets as well as their income is included in a "means test," which is used to determine whether or not the individual is required to make a financial contribution toward the cost of either their living arrangements or their ongoing health care requirements.

Illness drove a wedge between the couple

For the purposes of Centrelink, a married couple is considered to be "illness separated" if either of its members lives in a nursing home or an assisted living community for the elderly. They are subject to the joint means test in order to determine their eligibility, but payments are determined by the single rate of pension. This is due to the fact that the individual is responsible for paying any and all costs associated with receiving elderly care. Even if a married couple chooses to share a room, both individuals will be required to pay the basic daily fee, and their financial situation will be evaluated to determine whether or not they will be required to make a contribution toward the cost of their accommodation and care.

Blind pensioners

Although there is no financial eligibility requirement to receive the blind pension, a portion of the benefits received from this pension are counted toward the total income that is considered when determining eligibility for elderly care services.

DVA pensions

In general, people who receive income support pensions from the Department of Veterans Affairs are subjected to means testing in a manner comparable to that of people who receive pensions from Centrelink. The War Widows' and Widowers' Pension as well as the DVA Disability Pension are not included in this because they are considered forms of compensation rather than income support and are therefore exempt from the means test. However, the amounts received from these pensions are considered income for purposes of determining eligibility for aged care services.

Means tested care fee calculator

An individual who moves into an aged care facility can obtain an estimate of the means-tested care fee they will be required to pay by using the calculator that is made available on the My Aged Care website.

The assets that are considered for this means test are the same assets that are normally counted for the assets test administered by Centrelink. The home can be partially assessed if it is not occupied by any of the following:

  • A member of the immediate family who is eligible for an income support payment from Centrelink or the Department of Veterans Affairs and who has resided in the home for at least five years

  • The resident's caregiver who has resided in the home for at least two years and is qualified to receive an income support payment from Centrelink or the Department of Veterans Affairs.

If the home is subject to assessment, the amount that can be taxed is capped at the value at which the federal government's subsidy of the daily accommodation payment would become null and void. This amount, as of the 20th of September 2022, is $186,331. 20 In general, any amounts gifted that are greater than $10,000 in a single fiscal year or $30,000 over the course of a rolling period of five fiscal years will be included as an asset for a period of five years beginning on the date that they are disposed of.

This payment is also considered an assessable asset for the purposes of aged care, but it is still considered an exempt asset for the purposes of Centrelink. This is because when the cost of accommodation to reside in an aged care home is paid as a lump sum, it is referred to as a refundable accommodation deposit, or RAD.

A sliding scale is used in the calculation of the amount of assessable assets that are included in the means test, as shown in the table below.   

Quantity of Assets

% assessed

First $55,000


Between $55,000 - $186,331 20

17.5% of the amount greater than $55,000

Between $186,331 20 - $448,993 60

1.0% of total value

Over $448,993 60

2.0% of total value

The client's total assessable income is used to determine the amount of income that is subject to this means test. Total assessable income is defined as the sum of the client's ordinary income and their Centrelink or DVA pension income (after deducting the minimum pension supplement and the energy supplement). The client's ordinary income is primarily evaluated using the same methodology as that of the Centrelink income test, with one notable exception: for new entrants to aged care homes, rental income on retained family homes is now included in the assessment, regardless of whether a RAD or DAP is paid. This change took effect on January 1, 2016, and applies to all cases. The total assessable income of each member of a couple is equal to fifty percent of the couple's combined ordinary income, plus any payments from Centrelink or DVA that member of the couple receives.

Following is a calculation that determines the amount of assessable income that is subject to the means test.

Amount subject to income testing equals fifty percent of (total assessable income minus income free area) divided by three hundred sixty-four days.

The following are the current income-tested free areas, which are modified every six months in accordance with changes to the rates of the age pension:




$30,204 20 pa

Every individual that makes up a couple

$29,632 20 pa

These are determined by taking the maximum pension payments that can be received from Centrelink (either as a single person or as a member of a couple), subtracting the minimum pension and energy supplement, and adding the permitted level of income that does not affect pension payments.

Mean value obtained from testing

The amounts that are means tested for assets and income are then added together to produce an overall amount that is means tested, as shown in the table below.

Amount of means testing equals the sum of the amounts tested for income and assets divided by the number of days in a year.

After that, this means tested amount is used to determine how much of the resident's accommodation and aged care costs the resident is responsible for paying (if any). This is discussed in greater depth in the document titled "Your guide to aged care."

The Center for Social Development's evaluation of the family home

When moving into an elderly care facility, it is important to give careful consideration to whether the family home should be sold or kept. This decision should be made well in advance. The Center for Work and Income's analysis of the various potential outcomes is summarized in the table below.  

Scenario Homeower status Income Assets The sale of the family home results in cash being collected. Non-homeowner Considered to be immediate Immediate evaluation is possible. The home of the family is kept, and the partner now resides there. Homeowner Not assessable Not assessable The family home has been saved but is currently unoccupied. Homeowner for the first two years, and then becoming a renter after that. The phrase does not apply. Evaluable after a period of two years The home of the family is kept and is also rented out. Homeowner for the first two years, and then becoming a renter after that. Assessable Evaluable after a period of two years

If a client moved into an aged care facility prior to the 1st of January 2017, and they pay some of their accommodation payment as a DAP, DAC, or accommodation charge, then for the purposes of social security, the client is considered to have paid an accommodation charge.

  • During the time that the home is being rented out, the value of the home will be considered a tax-exempt asset, and

  • Under the terms of the income test, the net rental income will not be considered to be income.

Both the exemption for the former home and the exemption for rental income may be applicable to both members of a couple in which one spouse moved into an aged care facility before January 1, 2017, and the other moved in on or after that date. If the couple chooses to rent out their home, not only will the house continue to qualify as an exempt asset for both of them indefinitely so long as they continue to make DAP payments, but their rental income will also be exempt from social security taxes. However, if the spouse who moved into an aged care facility prior to January 1, 2017 passes away, the exemption on the rental income will be revoked, and the home will only be exempt from the assets test for a period of two years beginning on the date the second person moved into an aged care facility.

When compared to other types of investments, such as bank accounts, managed funds, or share portfolios, which are potentially subject to deeming, the purchase of an annuity that is either term-certain or lifetime typically results in a more favorable outcome under the income test.

The calculation of a deductible amount for Centrelink purposes results in a concessional treatment for these annuities because it lowers the assessable income under the income test for term annuities or lifetime annuities purchased before 1 July 2019. Alternatively, only sixty percent of the regular payments would be deducted from lifetime annuities bought after July 1, 2019. The deeming rates do not typically apply to these streams of income (with the exception of certain annuities with terms of five years or less), but there are some exceptions.

Deeming requirements apply to all account-based pensions that were started on or after January 1, 2015. The concessional treatment will be applied to account-based pensions that had their first payment made before that date (i e Annual Payment x [Purchase Price - commutations x Relevant Number]), provided that the recipient has continuously received a Centrelink income support payment since before January 1, 2015.

When evaluating the efficacy of this strategy for annuities, it is important to take into account both the allure of the current interest rates as well as the length of time for which the annuity will be held.

Putting money into a piece of land or a vacation home as an investment

From Centrelink's point of view, if the land or vacation home is not producing an income, they are considered to be lifestyle assets rather than financial investments. This is because lifestyle assets are not subject to capital gains tax. Despite the fact that they are part of the assets test, they are not evaluated as part of the income test; as a result, there is no income that can be assessed.

A pensioner can lessen the impact of the assets and income tests on their retirement benefits by giving away an asset. The following concurrent tests are required of both individuals and couples in order to comply with the gifting regulations imposed by Centrelink and DVA:

  • No more than $10,000 allowed per calendar year; and

  • $30,000 over the course of a rolling financial period of five years

Any amount gifted that is greater than either of the concurrent tests will be considered a financial asset for the purposes of Centrelink for a period of five years beginning on the date of the disposal of the asset. This period of time is referred to as "deprivation."

Establish a trust for the benefit of your family, and invest in a bond.

The customer may think about making a donation to a family trust. If the client is credited with one hundred percent of the trust's assets, deprivation is not applicable. As a result, the assets test results have not changed in any way. When applying the income test to a situation involving a private trust, Centrelink and the Department of Veterans Affairs only consider the actual distributions made by the trust. Because insurance bonds do not come with a payout, the trust does not have any money to give away to the beneficiaries because it does not generate any income. In the event that the trust does not generate any income, there will be no income that can be taxed. However, caution is required in the event that the insurance bond is cashed in after it has been deemed to be assessable income.

Internally, insurance bonds are subject to a tax rate of thirty percent, which in some cases may be greater than the client's marginal tax rate. When establishing a new trust for this objective, one must take into consideration the possibility of incurring additional costs.

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