The High Court has delivered a judgment that will be of significant interest for those potentially requiring long-term residential care in the future.
The relevant case involved asset and income means testing for the purposes of assessing whether an additional government subsidy is available to a person for the costs of that care. Contrary to the approach adopted in practice by Work and Income in recent times, the Court held that income streams associated with assets that a person has unconditionally gifted cannot be taken into account as income of that person for means testing purposes.
The case of Broadbent v Ministry of Social Development concerned a relatively common ownership structure. Between 1990 and 2014 Mrs Broadbent and her late husband sold certain assets, including the family home and a holiday home, to two family trusts for fair value. The trusts owed a debt back for the assets which was then periodically gifted to the trusts to the extent of $27,000 or less annually.
In 2014 Mrs Broadbent applied for a residential care subsidy in relation to her rest home costs. Under the Social Security Act, if a person has "deprived" themselves of property or income, a means assessment can be conducted on the basis that the deprivation had not occurred. The key issue in the case, therefore, was how the transfer of assets and gifting should be treated for the purposes of assessing Mrs Broadbent's eligibility for a subsidy.
The Ministry accepted that the gifts made to the trusts were under the $27,000 threshold specified in the legislation for permissible gifts and, therefore, Mrs Broadbent qualified for a subsidy on the basis of the assets test. However, the Ministry argued that Mrs Broadbent failed to qualify on the basis of the income means assessment as she had deprived herself of income by transferring the assets to the trusts.