Tax with Max: Planning aged care

We have $2 million in an SMSF – what assistance is available to us for aged care?

Summary: There are two types of aged care assistance – Home Care Agreements for those able to stay in their own homes, and residential care. For Home Care Agreements, the fees are a percentage of the age pension, or a daily care fee calculated by using a self-funded retiree’s annual income. For self funded retirees needing residential care, there is a means tested care fee that is based on income and assets, as well as the payable basic fee, accommodation fees and additional fees for services like hairdressing and pay TV.

Key take out: The fees associated with aged care vary widely, depending on whether individuals need a Home Care Agreement to stay in their own residence or if they are moving to residential care, and if they are paying a basic or income-tested fee for the services. It’s best to shop around and contact one of the many companies providing aged care advice to work out what is best for you.

Key beneficiaries: General investors. Category: Tax.

We are 73 and 63, have a house worth around $700,000 and $2 million in an SMSF. I am fairly certain that we are not eligible for any government benefits. I suspect that there are enough readers who, by dint of largish SMSF balances and other assets and a desire not to burden public finances, wish to stay clear of government assistance in old age. What are our options for aged care, how much does it cost, and when should we seek information?

Answer: When the new aged care system was introduced on July 1, 2014, there was a new focus on people staying in their homes longer. To obtain a home care package, a Home Care Agreement must be drawn up. The services provided under HCA’s are split into four levels:

•  Level 1 support for people with basic care needs

•  Level 2 support for people with low level care needs

•  Level 3 support for people with intermediate care needs

•  Level 4 support for people with high level care needs

The range of services offered under a HCA include:

• helping with personal requirements such as showering, bathing, dressing and mobility,

•  assisting with general household functions such as washing, ironing, housecleaning, gardening, basic home maintenance, home modifications related to care needs, transport for shopping and visits to doctors and social activities, and

• providing medical based assistance such as nursing and other health support such as physiotherapy, hearing and vision services.

Where extra services and care are needed, such as dementia and cognition support or supplementary oxygen for medical reasons, they are available through the home care provider.

To receive home care assistance an assessment must be made by a member of an aged care assessment team or an aged care assessment service. As a part of this assessment a package will be offered by a home care provider that addresses the needs and requirements of the person or couple applying for the assistance.

Once the assessment has been carried out and a person or couple are eligible for the package they will be put in touch with home care providers in the area. As a part of working out the HCP the Home Care Provider will enter into a Home Care Agreement that sets out what care and services will be received.

There are two types of fees payable under a HCA. There is a basic fee and an income tested fee. The basic home care fee has been set at 17.5 per cent of the basic age pension. Currently the basic home care fortnightly fee is $137.76. As pensions increase twice each year, in March and September, the basic daily care fee will increase on March 20, 2016.

There has been protection built into the new system so that part pensioners have their HCA income tested fees capped. There is a lower limit of $5,106 a year for people receiving the age pension, while self funded retirees not receiving any age pension have a higher limit of  $10,211 a year. Both the lower limit and higher limit increase each year in line with indexation.

Where a person’s total assessable income is less than the income free area, currently $25,488 for a single person and $39,562 for a couple, no income tested fee is payable.

The amount of income tested fee payable depends on three factors. They are:

• the actual cost of the home care package,

•  whether they are eligible to receive the age pension, and

• whether the income results in them receiving no age pension.

The income tested daily care fees for self funded retirees, in other words those people not entitled to receive any age pension, will be the lesser of the actual cost of the home care package, or the fee calculated by adding half of their income above the income threshold to $14.02, or $28.05 per day

If a home care package is not suitable, and they need to move into a residential aged care facility a range of fees can be paid. These include:

• A basic fee that will be paid by all people who receive residential care,

• A means tested care fee that is an extra contribution to the cost of care of the residence that is based on their income and assets,

• An accommodation payment that is also dependant on a person or couple’s assets is paid either as a lump sum accommodation refundable deposit, a daily accommodation payment, or a combination of both,

• Fees for extra or additional optional services such as hairdressing or cable TV and other services that are in addition to basic services provided.

Everyone entering an age care facility must pay a basic daily fee related to the care. The basic daily care fee is set at 85 per cent of the single person rate for the basic age pension. As pensions increase twice each year in March and September the basic daily fee also increases.

The daily means tested care fee payable is made up of an income tested amount and an asset tested amount

The income tested fee is calculated by deducting and income free limit from a person’s assessable income. The income tested fee payable is 50 per cent of the excess over the income free limit divided by 364.

The assets tested fee is payable where a person’s assets exceed a limit and the calculation of this fee is almost impossible. The means tested fee payable is calculated by the Department of Human Services.

To ensure that residents of age care facilities, and those receiving home care assistance, do not pay too much in means-tested fees there is an annual limit and a lifetime limit. The annual limit is $25,721. Once a resident has reached this limit in a year no more fees are payable until the anniversary date of when they entered the aged facility or the commencement date of their home care package.

The lifetime limit on means-tested fees is $61,755. Once a resident or a person receiving home care assistance has reached this lifetime limit no further means tested fees are payable by them.

Where resident had been paying Home Care Package fees these are also counted towards the annual and the lifetime limit for means tested fees.

In addition to the daily care fees, an accommodation fee is also payable. This can be in the form of a Refundable Accommodation Deposit or a daily accommodation payment fee. There is a maxim placed on RAD of $550,000.

The amount charged for the refundable deposit or accommodation payment can vary greatly between aged care providers and the type of care being provided. Where an aged care provider can demonstrate that they are providing a superior level of accommodation and care, after applying to the age care pricing Commissioner, they can charge a much higher RAD and daily accommodation payment fee.

Because of the wide variation in fees that can be paid it is important fact people shop around before being forced to go into aged care when they may have to take whatever is offered. There are a number of companies that provide aged care advice that assist in assessing what facility is best and they can also negotiate lower fees and deposits.

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