Residential Care Income Test NZ: How Your Pension and Savings Affect the Subsidy

What Happens to Your Income When You Enter Rest Home Care

Once an applicant passes the asset test for the Residential Care Subsidy, Work and Income moves to the income test. This determines exactly how much the resident contributes toward their weekly care costs and how much the government covers through the subsidy.

The formula is straightforward: the regional Maximum Contribution minus the resident's assessed income contribution equals the weekly subsidy paid by the state. But the details of what counts as income and what protections exist catch many families off guard.

What Income Is Counted

Work and Income assesses nearly all regular income sources. These include 100% of New Zealand Superannuation or Veteran's Pension, overseas government pensions, interest on savings and term deposits, dividends and managed fund distributions, business profits and employment earnings, trust or estate distributions, and 50% of any private superannuation payments or life insurance annuities.

For couples, both partners' income is assessed jointly. If one partner enters care while the other stays at home, the at-home partner's income may also be considered in certain calculations.

What's Protected: The Personal and Clothing Allowances

The system does not take everything. Two statutory allowances ensure the resident retains basic financial autonomy.

Personal allowance: The resident keeps $58.34 per week (after tax) from their NZ Super or other income. This is for personal discretionary spending like phone credit, toiletries, newspapers, and gifts. The rest of their Super is redirected to the care facility.

Clothing allowance: An annual tax-free payment of $365.92 specifically for replacing clothing. This is paid separately and does not reduce the subsidy calculation.

How NZ Super Is Redirected

For most rest home residents, NZ Super is the primary income source. Once the subsidy is approved, the resident's Super payments are redirected. The facility receives most of the pension directly, and the resident retains only the personal allowance.

The at-home partner should apply to shift from the couple rate of NZ Super to the single, living-alone rate, which provides a higher weekly payment. This change recognises that the at-home partner now runs a household alone and faces higher per-person costs.

The at-home partner also automatically qualifies for a Special Disability Allowance of $51.67 per week (tax-free) to help with travel costs for visiting the partner in care. No separate application is required.

Income From Assets Below the Threshold

There is a disregarded-income exemption for returns generated by assets held below the exempt threshold. The annual limits are $1,306 for a single person, $2,612 for a couple where both are in care, and $3,918 for a couple where one partner remains at home.

If the applicant's term deposit earns $1,200 per year in interest and they are single, all of that interest is disregarded. If it earns $2,000, only $694 counts toward the income assessment.

The Maximum Contribution Cap

The subsidy calculation is bounded by the regional Maximum Contribution, a gazetted cap that represents the most any resident can be charged for standard rest home care in their region. This cap varies by region and care level (rest home, dementia, hospital, psychogeriatric).

Crucially, residents in hospital-level or dementia care are not charged more than the standard rest home Maximum Contribution rate. Health New Zealand pays a Top-Up Subsidy directly to the facility to cover the higher clinical costs. The resident's maximum personal contribution stays the same regardless of care level.

Common Questions About the Income Test

Can I keep investment income? Only up to the disregarded-income exemption limits. Above those limits, investment income increases the assessed contribution.

What if I have an overseas pension? It is counted at 100% and converted to NZ dollars. Some bilateral social security agreements may affect how specific pensions are treated.

Is the income test reviewed? Yes. Work and Income reviews the subsidy annually. If income changes (for example, a term deposit matures and interest drops), the contribution is recalculated.

What about a partner's income? When one partner enters care and the other stays at home, the income assessment focuses primarily on the couple's combined income but the at-home partner's living costs are taken into account. The at-home partner retains their own NZ Super payments plus the Special Disability Allowance.

How the Income Test Differs From the Asset Test

The asset test is a pass/fail gate: assets are either above or below the threshold. The income test works differently. There is no income level that disqualifies someone from the subsidy. Instead, higher income means a higher personal contribution toward care costs and a smaller subsidy payment. Even a resident with significant income can receive the subsidy — it will just cover a smaller portion of the total fee.

This distinction matters because some families assume their parent earns "too much" from NZ Super plus a small term deposit to qualify. In reality, the income test simply adjusts the split between personal contribution and government subsidy. The subsidy fills whatever gap remains between the resident's assessed contribution and the regional Maximum Contribution.

What the Subsidy Actually Pays

To illustrate: if the regional Maximum Contribution is $1,200 per week and the resident's assessed income contribution is $380 per week (after the personal allowance deduction), the weekly subsidy is $820. The facility receives the full $1,200 ($380 from the resident's income, $820 from the subsidy).

If the resident's income were higher, say $500 per week assessed, the subsidy drops to $700 per week. The facility still receives the same $1,200 total. The subsidy adjusts to fill the gap, not to provide a fixed dollar amount.

The NZ Residential Care Subsidy Guide includes an income estimator worksheet that calculates the likely weekly contribution based on all income sources, so families can budget accurately before the formal assessment.

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