Entry Contribution

Last amended: 18 August 2011

Purpose of an entry contribution

The amount paid as an entry contribution is compared to the applicable extra allowable amount, in the assessment of a special residence, to determine whether or not a person should be considered a homeowner. Both refundable and non refundable entry contribution amounts must be included for this purpose.    

Amount of entry contribution

The following table demonstrates what amount is considered to be an entry contribution.

Note: The amount agreed to be paid, can also be the amount considered 'reasonable' for granny flat purposes and the 'deferred payment amount' for sale leaseback purposes.    

What happens if another person pays the entry contribution

If the person who actually pays the entry contribution is not the person entering the special residence (e.g. a son or daughter may pay), the amount is still maintained for pension purposes (as if the pensioner paid it) and assessed according to the table above.

What happens if a person changes their unit within the retirement village

If a person purchases a new unit within the same retirement village, they are entering into a new agreement which gives them their current right to live in the retirement village. This requires that their entry contribution, and so also their homeowner status, be re-determined.

The new entry contribution generally consists of the total amount paid under the new agreement for the right to live in the retirement village. This is usually the cost of the new unit. It can also include any amount paid under an earlier agreement which can be attributed to the cost of the person's current right to live in the retirement village.

Compare new entry contribution to the current extra allowable amount

The value of the new unit is then compared to the extra allowable amount which applied at the date that the new contract was finalised, to determine whether the person's homeowner status may have changed.

Note: Where a person moves to a new retirement village, their entry contribution should be reassessed based on the amount they pay to secure the right to live in the new retirement village.

Loan or donation component of an entry contribution

An entry contribution for a special residence may take the form of an interest free loan or donation, which permits the person who provides the loan or donation to reside in that facility/property. However, if the loan or donation component exceeds the normal contractual amount payable, the excess will be subject to the deprivation provisions.    

Entry contribution paid in periodic or multiple instalments

The entry contribution is usually specified in the contract of sale for the retirement village unit and may include provision for multiple payments. Deferred payments are also included in the calculation of the entry contribution.

Entry contribution excludes on-going expenses

The entry contribution does not include regular on-going expenses such as general service or maintenance fees, or deferred management fees.

Partial payment of entry contribution in advance of taking up occupancy

Situations may arise where a pensioner pays an amount in advance of being able to take up occupancy of the retirement village unit (e.g. the units are in the process of being constructed). In this situation, the amount paid in advance is assessed as follows:    

Note: The advance payment is no longer subject to deeming as it no longer meets the definition of 'available money' or 'deposit money'. Similarly, where an amount paid in advance is in the form of a loan, no interest will be deemed on the loan.    

Contract splitting the amount agreed to be paid

The entry contribution, being the amount agreed to be paid for the right to live in a retirement village, may consist of more than one contract. For example, a person may sign two contracts, one for a house, and one for an adjoining garage. The total amount of both contracts is the entry contribution amount where they relate to required amounts to be paid on entry. The signing of more than one contract will not alter the entry contribution assessment where it is evident that subsequent contracts are still a part of the amount paid for the right to enter the village.

If, however, evidence is produced to show that another contract is unrelated to the purchase of the right to accommodation, then the second contract amount may be excluded from the entry contribution amount. In this situation, it will instead become an assessable asset for pension purposes.

If in doubt, e-mail Policy Advisings Income Support.

Refunds of entry contribution on leaving retirement village

On leaving a retirement village, refunded entry contribution amounts are assessable.     

Where only one member of a couple leaves the retirement village (e.g. to enter aged care) and the other member remains behind, the entry contribution amount for both partners needs to be reassessed.  This reassessment is based on whether a refund has been made to the departing person and whether there has been a change in the amount now paid by the remaining partner for the right to live in the retirement village.

Delayed refund of entry contribution on leaving retirement village

Entry contribution refunds may be delayed when a person leaves a retirement village.  This may typically occur until the vacated unit is sold or for the time period specified in the Residential Agreement (commonly twelve months), whichever is the shorter period.

Where the refund is delayed, the entry contribution amount continues to be exempt until such time as it is received.  Subject to the two year limit on exemption when a person enters care, while the entry contribution amount remains with the retirement village owner it continues to represent the person's right to live in the retirement village, and retains the status of a right or interest in a principal home providing reasonable security of tenure.

For the extended exemption of the entry contribution amount to apply in these circumstances, it is necessary that the amount was previously a disregarded asset during the person's residency in the retirement village i.e. the amount exceeded the Extra Allowable Amount, resulting in homeowner status.

If a person paid less than the Extra Allowable Amount, and is therefore regarded as a non-homeowner, then the refund is assessable from the time it is received. If there is a long delay in the person actually receiving the refund, then the amount may be regarded as either a loan or a sale agreement.

Example: On entering the retirement village and paying an entry contribution, a person signs a contract stating that they will not receive the refund due to them immediately. Instead, under the terms of the contract, the refund must be invested in a trust account managed by the retirement village for a period of 8 years. In this case, the outstanding amount will be regarded as either a loan, or a sale agreement, depending on the terms specified in the contract.     

No refund to the departing person and no other change:

In this situation, the full amount of entry contribution previously held for both partners now represents the amount paid by the remaining partner for his/her right to live in the retirement village, and is his/her new entry contribution amount.     

Full or partial refund to the departing person and no other change

In this situation, the un-refunded amount represents the amount now paid by the remaining person for his/her right to continue to live in the retirement village and is now his/her entry contribution.  The amount refunded to the departing person becomes an assessable asset from the date he/she leaves the retirement village.  The refunded amount may not necessarily be half of the previously held entry contribution amount for the couple, e.g. where the couple's individual residence contributions at the time of entering the retirement village were different.      

Assessment of non refundable entry contributions on entering care

In some cases, an entry contribution may include both a refundable and a non-refundable component. N — on-refundable entry contribution amounts are not assessable for aged care assets assessment purposes. It is therefore important that, when a person leaves a retirement village to enter residential aged care, the retirement village entry contract is checked to ensure that any non-refundable amounts are excluded from the aged care assets assessment.

Renegotiation of entry contribution

A renegotiated entry contribution following the departure of one member of the couple (e.g. the remaining member moves to a different unit) has no relation to the refunded amount or to the original entry contribution amount.  The renegotiated amount, being the amount now paid for the right to live in the retirement village, is the new entry contribution amount.  To address possible assets test avoidance, this amount may also include, at the Commission's discretion, amounts paid or payable under earlier agreements that can be attributed to the cost of the person's current right to live in the retirement village.