If you need long-term residential care, you may be eligible for the Residential Care Subsidy, also known as a rest home subsidy. Associate Allanah Cunningham answers all your burning questions about the subsidies.
What is a rest home subsidy?
It is a form of benefit provided by the government to assist with the costs of rest home care for those who cannot afford to pay for their own rest home care.
How much is the Residential Care Subsidy?
The subsidy is not a set amount. If a person qualifies, it is the difference between what the rest home or care facility charges and what income the person in care has to contribute towards their care.
Who can get a subsidy?
Any person who:
- Is aged over 65; or
- Is under 65 and has a partner; or
- Is 50-64 and single with no dependent children
- Is assessed as needing long-term residential care in a hospital or rest home for an indefinite period of time, and is receiving contracted care services
- Does not have the means to pay for the whole cost of their care. This is determined by a means assessment
What is a means assessment?
This is a calculation undertaken by the Ministry of Social Development (“MSD”) which takes into account a person’s assets and income. It is a two-stage test.
Stage One: Asset Test
There are two asset limit thresholds to choose from, depending on your circumstances. For single people, or couples where both partners are in care, the higher limit of $256,554 (including all assets) will apply. For couples where one partner is in care, while the other remains in the family home, you are able to choose between using the higher threshold of $256,554 which includes all your assets, or a lower threshold of $140,495 which excludes the value of your home and your personal vehicle.
Assets include: cash or savings, investments and shares, life insurance polices with a surrender or cash asset value, loans made to other people (including family trusts), boats, caravans, campervans and investment properties. MSD may also consider the value of gifts that are above the gifting limit of $27,000 per couple (known as “excess gifts”), or any assets transferred to someone else during your lifetime for less than market value.
Debts can be offset against your assets, however this is at MSD’s discretion. The debts usually need to be third party debts, or connected directly to an asset disclosed in your asset test such as home loans (or loans to buy an occupation right), utility bills or personal loans with institutional lenders.
If you have settled assets into a trust, the trust assets are usually not considered as your own. They can however, be subject to scrutiny if there have been excess gifts, or if the trust derives an income.
If the total value of your assets under the applicable asset limits, then you are able to move on to the second stage of the means assessment, the income test.
Stage Two: Income Test
The underlying principle of the residential care subsidy legislation is that if you can pay for your own care, you should. That means all income that you have available to you must be paid towards your rest home care. There are some exceptions, but in most instances all income available to you should be directed to your rest home or care facility.
You can keep the following income per year:
- $1,114 for single people
- $2,228 for a couple when both have been assessed as needing care
- $3,341 for a couple where one partner has been assessed as needing care
When you are in care, your superannuation (less the above amounts annually) will go towards your rest home care.
If you have settled assets into a trust, and income is available from those trust assets or could be available (e.g. if the trust owns a house that can be sold), then MSD expects that the trust’s available income will be paid towards your care. If you do not get that income paid to you from the trust without good reason, MSD has discretion to consider it anyway. An example of this is where a trust owns a property where you have lived most of your life and the trustees decide not to sell the property. MSD may deem income from this asset, even if it is not actually being received.
Can I gift my money to my children or to a trust?
You can gift up to $27,000 per couple, per year, for up to 5 years prior to applying for a subsidy. In the 5 years prior to applying you can only gift $6,500 per person. You can gift over and above those amounts if the gift is in recognition of care but this has strict criteria and is considered on a case by case basis.
If you have historically gifted more than this, MSD has the discretion to consider those excess gifts as an asset of your own. This is true of all gifts, so will include gifts to trusts as well as gifts to people.
High house values at the moment means I will probably have assets over the asset limit because I own a house. What is the alternative if I can’t get a subsidy because I still own my home?
If you don’t qualify for a subsidy, you may be eligible for a residential care loan, which is similar to a reverse mortgage and means that you would owe MSD the costs of your care. Those costs then get paid on the sale of the property or within 12 months from the date of your death (whatever is sooner).
While applications are considered on a case-by-case basis, your home would need to be worth more than $256,554 and you must not have assets worth more than $15,000 (if single), or $30,000 (if a couple).
The above information is intended as general guidance only. This is a very specialised area of law, and each persons’ structures and circumstances are different, so each application warrants an individual approach. If there is a family trust or gifting involved then we recommend that you take legal advice prior to submitting an application to MSD, to ensure that you have provided the relevant information. There are many factors to consider, and the examples used may not apply in your situation.
If you, or anyone you know, are looking for advice in this area, don’t hesitate to get in touch with one of our specialists, or refer to the Work and Income website for more information.