The Residential Care Subsidy: Asset and Income Tests Explained
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AUTHOR: The Professional Trustee Team
If you’re enjoying a well-earned retirement, or looking out for the interests of your parents who are, there may come a time when rest home care is required, and you have to deal with funding the cost of that care.
Will you be eligible for the Residential Care Subsidy?
There is government support available in the form of the Residential Care Subsidy, but there are tests that determine whether or not you are eligible for this.
The rules around eligibility for the Residential Care Subsidy are an area where there are a lot of myths and misunderstandings. Hopefully we can help provide some clarity in this article - and of course talk to us at GRA if you would like help with these issues.
With that in mind, if you are looking at an application for the subsidy for you or a loved one, it is worth noting the following points.
Two tests: There are two tests that get applied in order to assess whether or not you are eligible. First there is an asset test. Second there is an income test.
Residential Care Subsidy Asset Test
- Asset base: To pass the asset test you need to have an asset base with a total value of less than $256,554 (current until 30 June 2023). When assessing your asset base, any assets your or your spouse/partner own are counted.
- Spouse’s assets: One aspect of the asset test that is often not appreciated is that a spouse’s or partner‘s personal assets can count towards the asset test, even if they are separate property from a relationship property point of view under a formal relationship property agreement.
- Alternative test: There is an alternative asset threshold which is applicable where there is a couple with one spouse or partner going into care and the other remaining in the family home. In these circumstances you can elect to apply this second test which carries a lower asset threshold of circa $140,495 (current until 30 June 2023), but excludes the home and a car from consideration.
A point of detail not always appreciated in relation to this alternative test is that you have to own the home personally to be eligible. If the home is owned by a trust, you cannot apply this alternative test.
- Should you have a trust? The above may sound like you are better off not having a trust. However, that is not always the case. Assets held in a trust are excluded from the applicant’s personal asset base, although there is a big proviso to that. The proviso is that gifting is counted as part of one’s asset base to the extent that it exceeds allowable limits.
The allowable limits are $7,000 a year in the five years immediately leading up to application, and $27,000 per year for the years prior to this. If you have gifted at no more than these thresholds, there will be no additions to your asset base, and as noted, the assets that have been gifted to, or acquired in, the trust are excluded.
Residential Care Subsidy Income Test
- If you get through the first step of the asset test, then an income test is applied. Rather than being a binary test which has a threshold that you are either above or below, the approach taken is that any income at your disposal gets applied towards the cost of care and the subsidy you are eligible for reduced to reflect this.
For example, if your only asset was $200,000 sitting in a term deposit, then the amount of subsidy paid would be reduced by the interest income that is deemed to be available. Similarly, NZ Super income is assumed to be available to pay for care, and the subsidy reduced to reflect this.
Seek advice around residential care subsidies
What should be coming through loud and clear here is that the rules in relation to the Residential Care Subsidy are complex. As with most things, it’s best to get advice sooner rather than later if you foresee this as an issue, so you know where you stand.
As always, GRA will be happy to provide advice in relation to the Residential Care Subsidy. You can contact us via our online form, by phoning +64 9 522 7955, or via email at info@gra.co.nz.
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