Should you downsize your family home if aged care is on the horizon?
As we approach the election the Coalition has announced that it is extending the category of people who can downsize their family homes and receive tax concessions if they put up to $300,000 of the surplus into superannuation.
The rule exists at present but only people over 60 years can take participate. It will be extended under the planned changes to people aged 55 years.
Labor has announced that it will match this policy.
So, we can then assume it is a really good idea. But is it?
I do not want to enter the debate about whether this will significantly increase the pool of housing stock for first home buyers as suggested by the Prime Minister and will leave that to property experts.
However, for older or infirm people needing to move into residential care in the near future, there are some pitfalls.
If a person moves into aged care at present but wants to keep their family home then for the purposes of aged care means testing their interest in the family home is assessed at:
- A capped amount of $178,839.20 (as of 20 March 2022) or the net market value of their house (if lower).
- If they are part of a couple, each partner is considered to own half of the home, so half of the net market value or the capped value is included as an asset – whichever is lower. The cap is applied to each half of the home.
It won’t be counted as an asset if:
- the partner or dependent children live there, or
- a carer eligible for an Australian Government income support payment has been living there for at least two years, or
- a close relative who is eligible for an Australian Government income support payment has been living there for at least five years.
By way of illustration:
A couple sells their Perth family home for $700,000 (net) and move into a unit costing $400,000 paying the surplus of $300,000 into superannuation. Their interest in the $400,000 property is assessed at $178,839.20 each. This would make them liable to pay for the full cost of the Refundable Accommodation Deposit or equivalent Daily Accommodation Payment to be negotiated with the aged care facility.
The $300,000 in superannuation would be added to their other assets and be assessed as part of their total assets for means-testing.
If they had remained in their family home then even though the value would be $700,000 ($350,000 each), their interest would still be assessed at only $178,839.20 each.
If the occupant of the family home is single, the interest is still assessed at $178,839.20 irrespective of the value of the family home. For residents of large homes in upmarket suburbs this provides a major windfall.