Historic deprivation

Bad investment decisions or chance investments that took place in the past are generally not considered deprivation. When a client applies for Residential Care Subsidy they are required to adjust investments to generate a reasonable income from the resources available to them.

For example, historic investments in bonus bonds would not be considered deprivation of income because the client had a chance of increasing their capital. However, once the client enters care they are expected to rearrange this so that the funds can earn an income. Failure to do so would be deprivation of income. The deprivation could be calculated based on the interest that would be received if the funds were in an interest earning account.

For more information see:

• Deprivation of assets and income

If a client made a transaction that was intended to benefit the other party, it is reasonable to assess deprivation of income for a historical period. For example, the sale of an asset in exchange for an interest free debt.

If the sales transaction also involved benefits for the client, you can offset these benefits from the interest forgone for the historic period.

When we have identified deprivation of income for a historic period, the amount of deprivation can be calculated by crystallising the income forgone. There is discretion to include the crystallised amount as a deprived asset in the financial means assessment.

For more information see:

• Using discretion

When possible, calculate the amount of deprived income from interest forgone by using the interest rate specified in the loan for its duration.

After the loan repayment period, calculate any compounded amounts using the Reserve Bank 6 month term deposit rate. If there was no interest rate specified in the loan, use the Reserve Bank 6-month term deposit interest rate for the entire calculation.

Example:

A single client sells their house to a trust in exchange for an interest-free debt. The debt is progressively forgiven over the years, within the allowable threshold.

The client lived in the house rent free until entering care. The value of free rent the client received can be used to offset the interest forgone on the debt owed to the client.