Maximising cashflow for aged care clients
- A refundable lump sum (known as a RAD);
- Ongoing payments (known as Daily Accommodation Payments or DAPs); or
- Combination of both.
- Payment of a RAD will reduce the amount of ongoing payments the resident will need to pay. Ongoing payments are simply interest on the amount of the accommodation payment that is not paid as a lump sum. The interest rate (known as the Maximum Permissible Interest Rate or MPIR) for ongoing payments is set by the Government and is currently 4.91% . Unless alternative investments can provide a better low risk return than the resident’s MPIR, choosing to pay a RAD compared to DAPs can improve a resident’s cashflow significantly.
- Payment of a RAD provides the resident with the option to have their DAPs on any outstanding accommodation payment (where a part RAD is paid) and other aged care fees deducted from the balance of their RAD. This can reduce pressure on their cashflows. However, it is important to note that while the law requires aged care homes to deduct DAPs from a resident’s RAD (where it is requested by the resident in writing), the law does not require them to do so with other fees. i.e. payment of other aged care fees, such as the basic daily care fee and means-tested care fee, from RADs is at the aged care home’s discretion.
- RADs are exempt from the Centrelink/DVA pension assets and income tests. This can help reduce assessable assets and income and increase a resident’s Age Pension entitlements, improving their cashflow. From an aged care means testing perspective, while RADs are assessed as an asset, there is no income assessment which can help reduce the means-tested care fee.
- Pays all of his accommodation payment as DAPs;
- Pays $250,000 as a part RAD with $150,000 outstanding paid as DAPs; and
- Pays $250,000 as a part RAD with DAPs on the $150,000 outstanding deducted from his part RAD.
- Net rent income will be assessed under both the Centrelink/DVA income test and the aged care means test. This will likely reduce Centrelink/DVA pension entitlements and increase aged care fees (means-tested care fee), reducing the overall cashflow benefits from receiving rent income.
- After two years, the former home will generally be assessed as an asset under the Centrelink/DVA pension assets test and can further impact pension entitlements;
- There may be significant refurbishments required before the home can be rented out;
- Potential periods during the year that the property may not be rented out;
- Rent income can increase the resident’s taxable income above relevant tax-free thresholds and require them to lodge annual tax returns; and
- Land tax may become payable.
- Pays all her accommodation payment as DAPs, retaining a cash reserve of $100,000 and does not rent out the former home; and
- Pays all her accommodation payment as DAPs, retaining a cash reserve of $100,000 and rents out the former home and receives $600 per week net rent.
STRATEGY THREE: CHOOSE A HIGHER PRICED ACCOMMODATION
STRATEGY FOUR: INVEST IN AN AGED CARE ANNUITY
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