Commonwealth of Australia Explanatory Memoranda

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AGED CARE AMENDMENT (RESIDENTIAL CARE) BILL 2006

                        2004-2005-2006




THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA




                           SENATE




 AGED CARE AMENDMENT (RESIDENTIAL CARE) BILL




   SUPPLEMENTARY EXPLANATORY MEMORANDUM




     Amendments to be Moved on Behalf of the Government




                 (Circulated by authority of the
   Minister for Ageing, Senator the Honourable Santo Santoro)
             AGED CARE AMENDMENT (RESIDENTIAL CARE) BILL


OUTLINE

The proposed government amendment amends the Aged Care Amendment (Residential Care)
Bill 2006.

The amendment

The Aged Care Amendment (Residential Care) Bill 2006 amends the Aged Care Act 1997 to,
inter alia, harmonise aged care and pension requirements in relation to income streams from
20 September 2007.

This amendment limits the application of the proposed new subsections 44-10(1A) and (1B)
of the Aged Care Act 1997 to income streams purchased on or after 20 September 2007.

This means that from 20 September 2007 there will be no exemption under the aged care
assets test for complying income streams purchased on or after 20 September 2007. The
rules for the treatment of these income streams will be aligned under both the pension and
aged care assets tests.

The purpose of the amendment is respond to concerns raised in consultations with the
community that prospective residents who purchased an income stream on or after 20
September 2004 could be disadvantaged by the new subsections 44-10(1A) and (1B)
originally proposed.

Some investment products that generate income streams are purchased using a person's
assets. Currently, the money used to buy these income streams is fully exempted from the
aged care assets assessment. Changes to pension arrangements announced in February 2004
mean that the then 100 percent aged pension asset test exemption for purchased complying
income streams was reduced to 50 percent for products purchased from 20 September 2004.

New subsections 44-10(1A) and (1B) originally proposed would align the aged care asset test
with the current aged pension asset test, such that 50 percent of the asset value of the
complying income stream would be assessable upon entry into residential aged care.

However, this means that residential care providers would have been able to take 50 percent
of the asset value of such an income stream into account when determining the amount of the
accommodation payment that the prospective resident could be asked to pay, even though the
prospective resident was not able to change the income stream into an asset with which to
pay the accommodation payment.

The amendment extends the 100 per cent exemption under the aged care assets test for all
complying income streams purchased prior to 20 September 2007. Income streams
purchased on or after 20 September 2007 will be treated for aged care assets test purposes as
they are treated for pension assets test purposes under the Veterans' Entitlements Act 1986
and the Social Security Act 1991.

The effect of this is to ensure that prospective residents who purchased complying income
streams after 20 September 2004 on the understanding that 100 percent of the asset value of


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those income streams would be exempt from the aged care asset test, are not disadvantaged
by the alignment of the aged care assets test with the pension assets test. This ensures the bill
is fairer and simpler in its application than originally proposed.

As the aged care assets test only applies on entry to an aged care home or moving to another
home, existing residents will not be affected by these changes while they remain in the same
aged care home.


Financial Impact

This amendment will have no significant impact upon the finances of the Commonwealth.




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             AGED CARE AMENDMENT (RESIDENTIAL CARE) BILL


                                  NOTES ON CLAUSES

Item 1

This item restricts the application of the proposed new subsection 44-10(1A) to income
streams purchased on or after 20 September 2007.

Item 2

This item restricts the application of the proposed new subsection 44-10(1B) to income
streams purchased on or after 20 September 2007.




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