Calculating value of a home for aged care, pension purposes

I have been told that my parents’ house will become an asset after they have been in a nursing home for two years. The house is unoccupied. How, or who, works out what the house is worth as an asset?

Rachel Lane, principal of Aged Care Gurus, explains that there are two different assessments of the home.

Illustration: Simon LetchCredit:

For aged-care purposes, when there is no "protected person" in the home, the value of the property is assessed for aged care means testing up to a capped amount of $169,079 each.

For pension purposes, the home is exempt for two years from the date the last person leaves the home. After two years, the property becomes assessable at the net market value, and the pension is calculated based on the non-homeowner asset threshold, which is higher than the homeowner threshold.

The net market value is the amount which could reasonably be expected to be received, less any debt secured by the property.

Centrelink or the Department of Veterans' Affairs will normally request details of the property and any debt and take the value estimated by you.

However, if they feel the value has been understated and is likely to affect the pension amount, then they can order a valuation, carried out by a valuer appointed by Centrelink

Until now, my shares have been bought as “issuer sponsored”. CommSec would now like me to change my holdings to Chess. Is there a good reason for doing so?

There is no downside by moving to Chess and there are advantages.

Once the transfer happens, your portfolio will have one single Holder Identification Number (HIN) and when you decide to sell any shares you won’t need to supply an individual Securityholder Reference Number (SRN) for each holding.

Furthermore, once you have the HIN, you can nominate a bank account for all dividends and will no longer need to send instructions to each share registry individually.

My residence has two loans. The first one is $250,000, with $23,000 in an offset account. I intend to use this money for investment purposes. The second loan is $50,000, with an offset account of $50,000. I use this for my day-to-day expenses. My plan is to purchase a new home in two years and I want to increase my deposit. If I withdraw the money from the first offset loan to buy my new home, will that affect my investment idea? I’m not keen to have money in the bank earning about 1 per cent interest.

You have highlighted the benefit of having an offset account, as it enables you to deposit and withdraw money without losing the deductibility of interest, which could happen if you made deposits and withdrawals from an investment loan.

Just keep in mind that the name of the game is to maximise your tax-deductible debt while minimising your non-deductible debt. Therefore, reduce your home loan as fast as possible after you buy the new home.

The money building up in the offset account is perfect to be used as your home deposit.
If possible, borrow to the maximum for any investment.

I have $400,000 in cash. I am 60 and not working but my wife earns enough to support us. Should I add, say, $200,000-$300,000 to my superannuation account, as I don't want to expose myself to too much direct risk – ie shares?

I think placing the money into super is a superb strategy because all the decisions will be made for you by experienced fund managers, and you won’t find it necessary to invest in the share market directly.

Unless you choose an extremely conservative option, part of the money you have in super will be exposed to shares but, given your age, this has advantages.

Keep in mind you may have 35 years of living and, therefore, investing to go.

I am 60, earn $70,000 a year and have $1.5 million in shares returning about $55,000 a year in dividends, plus franking credits of about $20,000. I have an $80,000 mortgage and no other debts. I would like to borrow to invest in a unit to gain some tax relief. How much should I borrow so that I reduce my tax to zero, or close to it?

Unfortunately, negative gearing does not save much tax because the income from the assets you buy tends to negate the interest on the loan.

Your best tax saver would be contribute $18,000 to superannuation as a personal contribution – this would reduce your tax by $4320 a year.

In any event, thanks to the franking credits, you are not too heavily taxed.

Your total taxable income should be about $145,000 when the franking credits are included, on which tax should be about $44,000.

The franking credits of $20,000 will reduce your total tax bill to just $23,000, which is not too harsh on your total income.

Furthermore, you should be making about $75,000 a year in capital gains, on which there is no tax payable until you start to cash them in. It’s almost a perfect situation.

Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. [email protected]

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