Aged Care - is your accommodation deposit refundable?

In my role as National Technical Manager at Centrepoint Alliance, I answer people’s questions.

Over the last few weeks, I have had several questions from people regarding the initial accommodation costs associated with entering a residential aged care facility.

Depending on a person’s circumstances at the time of entry to a residential aged care facility, they may be asked to pay a Refundable Accommodation Deposit (RAD). I have previously written about the RAD, but this was quite some time ago, so I thought it maybe timely to revisit this subject.

The average RAD paid by residents entering a residential aged care as per the Aged Care Financial Performance Survey in December 2017 was $323,849; but in the more expensive areas of Melbourne and Sydney the RAD can be in excess of $1,000,000.

The RAD works like an interest-free loan to an aged care home. The balance of the refundable accommodation deposit (after any agreed deductions have been drawn down) will be refunded to the resident or their estate on termination of the agreement for residential services.

The RAD is protected under the Aged Care (Bond Security) Amendment Bill 2013. In other words, if the facility does become insolvent, the Australian Government guarantees the refund of your deposit.

A question I am frequently asked is, “what are Aged Care homes allowed to do with the RAD?

Under the Aged Care Act 1997, Aged Care homes are permitted to use the RADs for any of the below:

• capital expenditure for residential or flexible care that is reasonable in the circumstances
• investing in financial products
• refunds of refundable deposits, accommodation bonds or entry contribution balances
• repayment of debt accrued for the purposes of capital expenditure or for refunding refundable deposits or accommodation bond balances
• reasonable business losses during the first 12 months that the approved provider operates a residential or flexible aged care service
• investments of refundable deposits or accommodation bonds into Religious Charitable Development Funds

The Aged Care laws in Australia incorporating the Aged Care Act 1997 provides more detailed information in relation to each of the points mentioned above.

You will note the second bullet point, ‘investing in financial products’. Permitted financial products (defined by section 764A of the Corporations Act 2001) are:

• deposits with an authorised deposit-taking institution (ADI) made available in the course of its banking business (e.g. deposits in bank accounts and term deposits)
• debentures, stocks, or bonds issued by the Commonwealth, states, or territories
• securities
• registered managed investment schemes, and
• unregistered managed investment schemes established for the purpose of investment in residential or flexible aged care

There are a number of things that a refundable deposit or accommodation bond must not be used for. This includes:

• routine repairs or maintenance such as painting, plumbing, electrical work, gardening, or vehicle leasing
• to cover the normal day to day costs of operating a service such as staff wages or the purchase of consumables
• routine replacement of furniture items such as wardrobes or lounges. It is expected that approved providers would use operational budgets to replace worn furniture.

You should also be aware that there are time limits for refunds of refundable deposits.

If the care recipient dies, the refund must be paid within 14 days of the approved provider being shown probate or letters of administration. If the care recipient is moving to another service, the refundable deposit must be paid:

• if more than 14 days’ notice of the move was given, on the date the person ceases being provided care,
• if less than 14 days’ notice of the move was given, 14 days after the notice was given, or
• if no notice was given, 14 days after the person ceased being provided care.

In any other case, the refundable deposit is to be paid within 14 days of the care recipient ceasing to be provided with residential care or flexible care.

Providers pay interest with respect to refundable deposits and accommodation bonds:

• at the base interest rate (BIR) for refundable deposit balances and accommodation bond balances, whichever of the following periods comes first:
  • between the day after the resident dies or leaves the approved provider's service and the date the refundable deposit balance or accommodation bond balance is refunded, or
  • between the day after the resident dies or leaves the approved provider's service and the end of the legislated timeframe for refund of the refundable deposit balance or accommodation bond balance,
• at the maximum permissible interest rate (MPIR) between the end of the legislated timeframe for refund of the refundable deposit balance or accommodation bond balance is repaid.

As of 1 June 2020, base interest rate is 2.50% and the maximum permissible interest rate is 4.89%, these rates do change on a regular basis.

Understanding the complexities of a RAD is not easy and this article does not cover all the associated issues, so do make sure that if you are unsure and have questions that you talk to an expert before making any decisions.