Residential Care Subsidies - Notional Income

When a person requires long-term residential care in their old age, an application can be made for a subsidy to assist in meeting the cost of such care – a residential care subsidy.

The general purpose of the legislation creating these subsidies is to provide financial support to individuals while taking into account that where appropriate, they should first use the resources available to them before turning to the state for assistance.

The application is a two-step process. The first step is a means assessment. If the applicant is below the relevant threshold, the second step is an income assessment. Income is defined very broadly for income assessment purposes.

The decision of the High Court in Broadbent v Ministry of Social Development [2017] NZHC 1499, which is essentially a test case, considers whether income derived from assets gifted out of the ownership of the applicant (often referred to as ‘notional income’) can be taken into consideration for income assessment purposes.

In Broadbent, the Ministry considered that Mrs Broadbent had deprived herself of income of over $45,000 per year by transferring assets into a trust. This calculation was achieved by treating as Mrs Broadbent’s income both the actual income derived from the assets, as well as the income that could have been earned had the trust not held non-income earning assets. As a result, Mrs Broadbent’s income was assessed as being over the relevant threshold necessary to qualify for a subsidy.

Mrs Broadbent successfully challenged the Ministry’s position on the grounds that once a gift is made, “that is the end of the matter.”

The result was a finding that MSD has been wrong to assess notional income on assets that have been gifted to a trust.

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