29 June 2015

Families can still take advantage of aged care rule changes

Significant changes to the rules for aged care means-testing last year has major implications for those in aged care who still own their family home. For advisers, a thorough understanding of the new situation is essential for providing advice and outcomes for their clients.

However, according to Neil Rogan, General Manager of Centuria Life, one of Australia’s top four investment bond providers, there are substantial opportunities that have arisen from the changes which people are not yet taking advantage of.  As a result, those individuals may be paying more for their care than they need to. He says they should be looking at alternative investment options that assist them to maximise their government benefits whilst also aiming to deliver returns within the regulatory framework.

“While the aged care changes have been in effect for almost a year, we are seeing a lack of take up of advice around the structuring of assets that would enable clients to reduce their costs,” he said.

“Aged care fees are based on income testing, so the smartest way to ensure you’re not paying unnecessarily high fees is to take actions that will legally lower your income. In so doing, clients can make substantial savings a year, depending on individual circumstances.”

Mr Rogan explained that those who went into aged care prior to 1 July 2014 and have not sold their family home may face higher charges. They could be asked to pay an income-tested fee up to $75.42 per day which equates to $27,528 a year. This is in addition to the basic daily care fee and the cost of accommodation.

The income-tested care fee is based on assessable income from assets and investments as well as government payments, cash, term deposits and shares.

Investment structures such as family trusts that invest in an investment/insurance bond can reduce a person’s assessable income because the aged care fees are calculated on the actual taxable income generated, which can be zero, as long as the client does not make withdrawals from the bond within the first 10 years.

“Care must be taken to ensure cash flow needs are met, however, putting investment bonds into the mix can be a highly effective investment strategy. We find that Australians don’t do enough to reduce their taxes and outgoings and a few simple changes to their investment strategy can make a big difference.”



Rachel is a widow who moved into residential aged care in June 2014 and paid an accommodation bond of $200,000. She has the following income and assets:

Former home $870,000
Cash/term deposits $230,000
Share portfolio $325,000
Defined benefit pension $28,000 per annum (fully assessable)


Rachel has been receiving a small age pension of $1,786 per annum and her care fees are currently $25,933 per annum ($17,334 basic care fee plus $8,599 income-tested fee).

Should Rachel’s family decide to sell her former home and invest the $870,000 sale proceeds into term deposits, based on the deemed earnings on the additional term deposit she will lose the age pension and her care fees will increase to $37,526 per annum due to the income-tested care fee increasing to $20,192 per year.

Whilst strategies to fund aged care fees will differ according to each client’s particular circumstances, Centuria is calling on advisers to find out more about strategies that utilise investment bonds to help their clients take advantage of the benefits of investing within the investment bond structure.