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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.
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Amount of entry contribution
VEA ?
The following table demonstrates what amount is considered to be an entry contribution.
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If a person is... |
And... |
Then the person's entry contribution is... |
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total amount agreed to be paid. |
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both members are sharing accommodation in a special residence |
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a member of a couple |
members have different principal homes, both in special residences |
half the total amount agreed to be paid. |
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a member of a couple |
partner not entering a special residence |
total amount agreed to be paid. |
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a member of an illness separated couple |
partner not entering a special residence |
total amount agreed to be paid. |
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a member of an illness separated couple |
both members are sharing accommodation in a special residence |
half the total amount agreed to be paid. |
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a member of an illness separated couple |
both members are entering separate accommodation in a special residence |
individual amounts agreed to be paid. |
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.
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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
VEA ?
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.
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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:
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If... |
Then... |
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part or all of the proceeds of sale of the person's principal residence are an exempt asset |
the advance payment is taken as being part of the exempt amount and remains exempt. |
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the total proceeds of sale of the person's principal residence is assessed as an asset |
the advance payment is also assessed as an asset. |
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.
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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.
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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.
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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.
VEA ?
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.
VEA ?
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. Non-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.
VEA ?
General Provisions of Deprivation
Principal Home
Deeming Provisions
An entry contribution is the amount paid or agreed to be paid by a person for the right to live in a:
- retirement village; or
- granny flat.
If a person lives in a home subject to a sale leaseback agreement, the entry contribution is the balance of the amount still to be paid by a buyer, at the date of a sale leaseback agreement.
Refer to Section 52M of the VEA for the full definition.
The "extra allowable amount" is the difference between the property owner assets value limit and the non property owner assets value limit which applies to the person.
As the property and non property owner assets value limits are indexed or adjusted on an annual basis, the extra allowable amounts also increase annually.
The assets value limits applied to this formula are the limits applicable at the time the person made the entry contribution to enter the special residence.
Refer to Section 52N of the VEA for the full definition.
According to subsection 5MC(2) of the VEA a special residence is:
- a retirement village; or
- a granny flat; or
- a sale leaseback home.
A person is a homeowner if they have a right or interest, which gives reasonable security of tenure in the principal home.
Refer to sections 52Q and 52R of VEA for the definition when determining if a person is a considered to be a homeowner when living in a special residence.
A person is also considered to be a homeowner if they have sold their home in the previous 12 months and intend to use part or all of the proceeds to purchase another home.
The term not a member of a couple covers all persons who are not covered by the definitions of member of a couple.
According to Section 5E(2) of the VEA a person is a member of a couple, if they are:
- legally married to another person and is not living separately and apart from the other person on a permanent basis; or
- living in a prescribed registered relationship with the other person (whether of the same sex or a different sex) and is not living separately and apart from that other person on a permanent basis; or
- all of the following conditions are met:
- living with another person, whether of the same sex or a different sex;
- not legally married to that person;
- in a de facto relationship with that person; and
- not in a prohibited relationship
The term “partnered” is also commonly used.
The principal home has the meaning given by subsection 5LA(1) of the VEA and subsection 5LA(2) of the VEA. The principal home of a person is generally the place in which they reside. In certain circumstances, however, the principal home of a person can be the place in which they formerly resided. The following property is regarded as part of the principal home.
- the residence itself (e.g. house, flat, caravan),
- permanent fixtures (e.g. stoves, built-in heaters, dish-washers, light fittings and affixed carpets),
- [glossary:curtilage:DEF/Curtilage] (i.e. two hectares or less of private land around the home where the private land use test has been satisfied, or all land held on the same title as the person's principal home where the extended land use test has been satisfied), or
- any garage, shed, tennis court or swimming pool used primarily for private purposes provided it is on the same title as the principal home.
A person's 'partner' is someone who is a member of a couple with that person.
An illness separated couple is a couple who cannot share a home because of the illness or infirmity of one or both partners. Illness separated couples may be paid the higher single rate of pension. Refer to subsection 5R(5) of the VEA for the full definition.
A granny flat interest exists if a person has established a right to accommodation for life, or a life interest in another person's private home.
Granny flat interests are established by the following methods:
- transferring title of the pensioner's principal home to a relative and retaining a right of occupancy for life;
- providing funds for the construction of a granny flat in which the pensioner has a right to reside for life on a relative's property;
- providing some or all of the purchase price of a property which will usually be registered in a relative's name but in which the pensioner has a right to reside for life; or
- the terms of an estate.
Refer to Section 5MA(2) of the VEA for the full definition.
According to subsection 5M(3) of the VEA, premises constitute a retirement village if:
- the premises are residential premises; and
- accommodation in the premises is primarily intended for persons who are at least 55 years old; and
- the premises consist of one or more of the following kinds of accommodation:
- self-care units;
- serviced units;
- hostel units; and
- the premises include communal facilities for use by occupants of the units referred to above.
An exempt asset is one that is disregarded when calculating the value of a person's assets under the assets test. Examples of exempt assets include:
- the value of a person's principal home,
- any motor vehicle provided under the Vehicle Assistance Scheme,
- the value of any medal or decoration awarded for valour, other than used as an investment or hobby,
- up to two funeral bonds where the combined amount invested is within the funeral bond threshold,
- a prepaid funeral or cemetery plot
- value of a superannuation fund investment prior to pension age.
For a full legislative definition see section 52 of the VEA.
An asset means any property, including property outside Australia.