The two-year pension rule for an empty home: when it starts and when it ends

Lots of families leave the house as it is when a parent moves into care. Sometimes there's no rush to sell. Sometimes nobody can face clearing it out yet. Then someone mentions "the two-year rule" and the worry starts.

Here's what that rule is, when it begins and ends, and what it does and doesn't cover.

Two different tests, two different rules

Two separate assessments look at the home when your parent moves into care:

1. The Age Pension (Services Australia, or DVA for some veterans), which sets how much pension is paid.
2. The aged care means assessment, which sets the fees and contributions paid to the aged care home.

The two-year rule belongs only to the Age Pension. The aged care means assessment has no two-year rule at all. That's the part families most often mix up, so we cover it in its own section below.

What the two-year rule does

Normally, your home doesn't count in the pension assets test. That's because it's where you live.

When your parent moves into permanent care, the law lets the pension keep treating the house as their home for a while, even though it's empty. During that time:

• the house isn't counted as an asset for the pension; and
• your parent is still treated as a homeowner.

That period lasts for two years.

When the two years start

The two years start on the day your parent enters care, not the day they last slept in the house.

That matters when there's a gap. Plenty of people leave home well before they move into an aged care home. They might have a fall and go to hospital, and then stay with family while a place is found.

For a short gap like that, a different rule usually covers the house. A home can stay the principal home for up to 12 months while someone is temporarily away. Then the two years begin once your parent enters care.

So leaving home earlier doesn't normally make the two years end earlier. The end date is set by the date your parent moved into care.

When the start date is less clear

A few situations aren't so simple. The start date may be earlier, or Services Australia may need to look at the facts:

• Respite in an aged care home before moving in permanently. A respite stay may start the clock earlier than permanent entry. This hasn't been confirmed either way, so check with Services Australia.
• A long hospital stay. An ordinary hospital stay doesn't start the clock. But if your parent spent more than 35 days in a row in hospital mainly for nursing care rather than treatment, that stay may count as entering care. Whether it does depends on the facts, so ask Services Australia.
• A gap of more than a year between leaving home and entering care.

If any of these apply, ask Services Australia to confirm the dates for your parent. Our calculator doesn't work out the effect of a gap between leaving home and moving into care. It notes the gap and still counts the two years from the entry date.

Moving to another home doesn't restart it

If your parent later moves from one aged care home to another, a new two-year period doesn't begin. The original start date still applies.

What can end it early, or stretch it out

• Selling the house. Once it's sold, there's no home left to exempt. The sale money counts for the pension from settlement. See our guide to selling, renting or keeping the home.
• A partner still living there. If your parent's partner stays in the house, it stays exempt for the pension for as long as they live there. The two-year limit doesn't bite while they do.
• Older arrangements for rented homes. Some people who entered care many years ago, and rent out the home while paying a daily accommodation payment, have a longer exemption under older rules. These rules are closed to people entering care now.

What happens when the two years are up

If the house is still empty and no partner lives there, things change from the second anniversary of the entry date:

• The house starts counting as an asset for the pension, at its full market value less any debt secured against it.
• Your parent is assessed as a non-homeowner. Non-homeowners have a higher asset limit than homeowners, but that usually doesn't make up for the whole house now counting.

For many people, this means a smaller pension, or none at all. Rent from the house, if it's let, is counted as income too.

Services Australia can tell you the exact date the exemption ends for your parent.

Meanwhile, in the aged care means assessment

The aged care fees don't wait two years. From the day your parent moves in, the home is counted in the means assessment, unless someone protected still lives there. Protected people include a partner, a dependent child, or certain carers and close relatives who've lived there for some time.

Even when the home is counted, it's only counted up to a cap. As at the current schedule, the cap is $219,858.40. If the house is worth less than the cap, its actual value is counted instead.

So an empty house can be:

• not counted for the pension (during the two years); and
• counted up to the cap for aged care fees (from day one).

Both are true at the same time. That's normal, not a mistake.

If a lump sum is paid for the room

If the room is paid for with a refundable accommodation deposit (RAD), the amount paid as a RAD isn't counted in the pension assets test. It's still counted for aged care fees, but no income is deemed on it.

That's one reason the timing of a sale, and what the money is used for, can change the pension. It's also why families often look at the dates before the two years run out.

Questions families often ask

Can we get the two years extended? We aren't aware of a general way to extend it for a house that's simply empty. Services Australia can confirm whether any exception applies.

Does anything need reporting? Yes. Tell Services Australia when your parent moves into care, and again if the home is sold, rented or someone moves in or out. For aged care fees, changes need reporting within 28 days.

Is my parent a DVA client? DVA has its own page on how aged care affects its income support payments. Check with DVA if that applies.

What to do next

• Write down the date your parent left home and the date they entered care.
• Ask Services Australia to confirm when the pension exemption ends.
• Use the Aged Care Costs calculator for an estimate of the fees, with the home counted as it is today.
• Before deciding what to do with the home, consider talking it through with a licensed financial adviser who specialises in aged care.

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