Face up to aged care changes now or face higher costs

I see the comment by Son In Law above and suggest considering Home Care Package medical expense eligibility as a another issue for Aged Care consumers. I am trying to ascertain the ATO view on this currently but without much luck. However a taxpayer can self assess if they get it right.

I see the definition of medical expenses (ATO Website: T6 Total net medical expenses) includes amongst other items, payments:
- to a carer who looks after a person who is blind or permanently confined to a bed or wheelchair or
- residential aged care expenses

There are explanations of the residential care entitlement with examples there and elsewhere of inclusions/exclusions. The inclusions appear to cover similar services as provided under the ACAT Assessed Home Care package system but are not covered there as the explanations only relate to the residential aged care inclusion in medical expenses.

I also understand that whilst the medical expense offset has been significantly curtailed, it does continue for;
1) those who had an approved claim in 2012-2013 (not relevant here) OR
2) If you did not receive this offset in your 2012–13 income tax assessment you can only claim net medical expenses relating to disability aids, attendant care or aged care.
That web page goes on to explain:
- Attendant care expenses relate to services and care provided to a person with a disability to assist with every day living, such as the provision of personal assistance, home nursing, home maintenance, and domestic services.
- Aged care expenses relate to services and accommodation provided by an approved aged care provider to a person who is a care recipient or continuing care recipient within the meaning of the Aged Care Act 1997.
For the Aged care expenses the legislation actually says "relates to care provided by an approved provider (within the meaning of the Aged Care Act 1997 ) of a person who: (i) is approved as a care recipient under that Act; or (ii) is a continuing care recipient within the meaning of that 19 Act."

Home Care packages come under that ACT. It is the cost of the Home Care Package which is in question as unrelated medical expenses are no longer eligible except if a claim was approved in 2012-2013. The Home Care Package costs would seem often to fall under both items as for the care of disabled option the consumer effectively has to have some form of disability anyway to get the Home Care Package and it is the cost of care under that package which is being considered for eligibility.

Alex,
After 1 July, will it still be beneficial for a family member to move into the home and pay a small rent? My mother is a self funded retiree.

Hi Audrey,
Challenger has some information here: http://www.challenger.com.au/retire/reform.asp

This article has more detail and includes the formulas: http://www.moneymanagement.com.au/professional-development/capability/financial-planning/guide-to-the-government-s-aged-care-reform-package

The Government has put in place a website to assist: http://www.myagedcare.gov.au/aged-care-home-costs-1-july-2014/aged-care-home-means-tested-care-fee-1-july-2014

And there is a phone number you can call to get an estimate of the fees payable: 1800 200 422. I haven't actually used this service before, but I think it's worth a go.

I have not been able to find the new rules anywhere - where can I find them?

I would like to calculate my mother's potential fees.

Audrey

This was several years ago - he died in 2008, and went to the hostel in about 2002 before moving to a nursing home in 2005 or thereabouts.

Definitely not in a retirement village.

Still it sounds like the rules are changing.

Incidentally, he was financially better off when he sold his home and moved to the hostel than he'd ever been in his life. We are glad we sold the home and invested in a diversified portfolio. Instead of an illiquid asset that would only earn income if we employed an agent and hoped that tenants wouldn't trash the place, we had a good portfolio that delivered interest and dividend income far above the pension, and for him far above what he'd earned (in real terms) when he was working. When he died the estate was easy to liquidate and split among the beneficiaries.

I'm all for selling the family home once the "aged P" moves on.

I tend to agree - most if not all our clients have sold their home and been in a better position. That is because they got advice on the investment of the proceeds, and how to optimise their Age Pension (if applicable) and income tested fees.

Unfortunately, many don't get advice - they just sell their home, put the money in the bank, lose their pension and pay big income tested fees not realising how much better off they could be.

Keeping the house comes with a myriad of problems - renovations often needed to get it up to scratch to rent, managing the property when adult kids are busy with their own lives, tax and Centrelink consequences etc. One of the few times it works is when an adult child moves into it and pays a small rent, keeping it exempt from the Assets Test for mum or dad.

Alex, is there still a difference between hostel accommodation and nursing home?

When my late father-in-law was living in a hostel, he had a modest income tax bill on the investment income he was earning on the proceeds of the sale of his home.

When he moved from hostel to nursing home, most of his accommodation costs became medical expenses and the tax deduction meant that he kept all his income tax free.

Is this being extinguished by the removal of a distinction between 'low level' and 'high level' care? If so, then that seems harsh and unreasonable because there is a huge quality of life difference between living in a hostel where you have some independence and freedom of movement, and being in a nursing home when your health has deteriorated to the point where you need that on-going attention.

That's interesting - my understanding was that hostel expenses count towards the net medical expenses tax offset (NMETO) as they do for nursing home accommodation. Perhaps he was in a retirement village?

Last year the Gillard Government announced it would be phasing out the NMETO and the current Govt has announced it would proceed with this measure.

Aged Care expenses come under a transitional arrangement which means from the 2013-14 income year until the end of the 2018-19 income year taxpayers can only claim the NMETO for medical expenses that both meet the current definition and eligibility requirements and relate to disability aids, attendant care or aged care. The legislation enacting this measure is yet to be introduced.

The government needs to look at solutions including access to "value" in the family home upon death. It is not the taxpayers obligation to "subsidise" beneficiaries of an estate.

A great article: the biggest challenge we have in this area is overcoming the emotional barrier confronted by those having to consider leaving the long-term family/ marital home, with the decision as to when to go and how to fund going, left to the last minute - in spite of all the prompting from ourselves and the financial media generally.

I'm glad to see others find this area complex!

In your article Alex you mention the lifetime cap of $60,000 yet you still conclude the new rules will be more expensive for those with ‘greater means’. The current rules don’t seem to have any lifetime caps that I can find, so I was left unsure as to why you felt the new rules would be costlier for independent retirees with significant assets and income.

Hi Kevin, yes I can see that wasn't made clear in the article. The means tested care fee is subject to the cap, and the $25,000 per annum ($68 per day) is close to what the maximum income tested fee is now. However, that maximum applies to those with very high income. For everyone else, the formulas to determine the Income Tested fee (entry pre 1 July) and the Means Tested Care Fee (entry post 30 June) come up with very different results.

Borrowing an example from Challenger, Fred is single with a home worth $500,000 and $300,000 in the bank. He's paid an accommodation deposit of $300,000. His income tested fee for entry prior to 1 July 2014 would be $1.97 a day, and his means tested care fee for entry after 30 June 2014 would be $29.59 per day - a rather significant difference!

Also under the current rules, the maximum accommodation bond a resident can be asked to pay is their assets less $44,000. Under the new rules, if the published accommodation deposit is more than assets plus $44,000, the remainder is charged as a Daily Accommodation Payment.

Obviously, we'd all prefer our older citizens to live in their own home for as long as practical and, even after moving to some type of aged care facility, there may be benefit in keeping the family home as the article highlights under the new rules. However, at some stage a need/ want to sell the home/ property assets often eventuates.

The article underscores the overall link between aged care planning decisions and property. It's encouraging to see an increasing specialisation in aged care advice services across all aspects of this complex space. It's obviously required but there's one notable exception - independent and professionally aligned advice and support with the sale of property assets.

That's a good point Wayne. In almost all of the cases I've dealt with, the home is sold. An elderly person at this stage in their life isn't up to managing a rental property, and the kids generally don't want to do it.

Congratulations government, in making it increasingly mind-numbingly complex for all parties concerned. A simple concept involving what fee someone should pay for aged care, ends up amounting to pages and pages of complex calculations and formulas. Its no wonder companies are drowning in red tape and increasingly basing themselves offshore.