From 1 January 2016, aged care residents who decide to rent out their former home in order to help fund their care costs could find themselves paying more.
In prior years, an aged care resident could rent out their home, and not have this income included in the means tests that determine how much the resident will have to contribute to their cost of care.
From this year, this exemption will no longer apply.
Rental income will now be taken into account when working out the Means Tested Care Fee - which can be up to $25 731 per year.
While the calculation of the Means Tested Care Fee is complex, and depends on other factors besides the residents' income and asset position, it is worth considering that in the majority of cases the impact of this change should be quite straightforward to predict.
For a single resident of an aged care facility, The Means Tested Care Fee test captures income over a threshold of $25 287 per year. For every dollar over this limit, the Means Tested Care Fee can increase 50 cents. Note the income considered in this test includes the age pension, and deemed income from financial assets such as bank deposits and investments.
So for a resident looking to keep the home and rent it out to help pay care costs, the government could be taking half the rent in fee increases. That's half as good as it used to be.
Note that rental income is still exempt from the test for the age pension - however the government has flagged pension means testing arrangements will soon change to include rental income. That looks like a story for 2017.
The bottom line is that the government wants older Australians to contribute more to their cost of care, and with budgets deteriorating, this is going to be a story for a while to come.
Later Life Advice can help.