Refundable Accommodation Deposits: Aged Care RAD Explained

When choosing an aged care facility for a parent or loved-one, it’s important to know the Refundable Accommodation Deposit (RAD) in order to determine affordability.

Each aged care facility has its own Refundable Accommodation Deposit (RAD) amount.

But what is it? How does it work? And is it better to pay a RAD or a DAP?

Let’s find out.

What is a Refundable Accommodation Deposit?

A Refundable Accommodation Deposit is a lump sum amount to be paid to an aged care home upon entering care. However, there is no obligation to make a payment towards the RAD. If you choose not to pay the RAD in full, a DAP will be payable.

Generally, a RAD will range from around $250,000 to $1.5M, based on the quality and location of the aged care facility. You can negotiate with the home for a lower RAD, but not a higher one.

How is a Refundable Accommodation Deposit Calculated?

An aged care RAD is set independently by each aged care facility. Every aged care home must advertise their RAD amount, which can vary within the same aged care facility depending on the type of room.

For example, a higher RAD amount will be payable for a single room with your own bathroom and lower for a shared room with a shared bathroom.

Here’s an example of how RAD amounts can differ within the same facility, depending on the room chosen:

Source: https://www.tricare.com.au/aged-care/room-type-calculator/ Mermaid Beach

How Does the Refundable Accommodation Deposit Work?

Here’s a rundown of how the Refundable Accommodation Deposit works and how it affects the Daily Accommodation Payment.

Upon moving into an aged care facility, you will need to make a decision as to whether you are paying the RAD in full, making a partial RAD payment, or not contributing to the RAD at all.

Any amount of the RAD that is left unpaid will incur a Daily Accommodation Payment (DAP). The DAP is calculated as the outstanding RAD amount multiplied by the Maximum Permissible Interest Rate (MPIR) – currently 8.38% p.a. as of January 2024.

If you have made a partial payment towards the RAD, you can opt to have the DAP deducted from the RAD. Obviously this will progressively increase the unpaid RAD amount and therefore increase the DAP at a compounding rate.

If only a partial payment to the RAD is made (or no payment at all), subsequent payments are permitted at a later date.

Aged care homes will generally prefer that the RAD is paid in full or at least partially paid.

When an aged care resident leaves the aged care facility or passes away, the RAD is returned to them or their estate.

An Example of How the Refundable Accommodation Deposit Works

Here’s an example of how the RAD works in a real-life situation.

Let’s assume that your mother moves into an aged care home that has a RAD of $600,000.

If your mother pays the RAD amount of $600,000 in full, then no Daily Accommodation Payment (DAP) is payable.

However, if your mother pays $400,000 of the $600,000 RAD, then a DAP of $45.92 per day ($200,000 unpaid amount multiplied by MPIR of 8.38% p.a divided by 365 days in the year) is payable.

This DAP amount of $45.92 can be paid from her personal bank account or deducted from the RAD. However, if deducted from the RAD, the RAD balance will be reduced by this amount, effectively increasing the unpaid RAD and subsequently the DAP amount.

Therefore, after 30 days, the RAD will be  reduced to $398,622.40 ($400,000 – ($44.66 x 30)).

How Is a RAD Assessed for Centrelink and Aged Care Fee Purposes?

The amount paid as a Refundable Accommodation Deposit is assessed differently for Centrelink Age Pension purposes and Aged Care fee purposes, as follows:

• Centrelink Age Pension – Any amount contributed to the RAD is completely exempt from Age Pension assessment under the Assets Test and the Income Test.
• Aged Care Fees – Any amount contributed to the RAD is assessed as an asset for Means Tested Care fee purposes, but has no assessable income.

Therefore, making payments towards the RAD can help you achieve higher Age Pension payments and reduce aged care fees. However, this will not necessarily be the case if you borrow funds to contribute to the RAD, as your assets are being artificially increased which may result in higher aged care fees.

At Core Value Aged Care Advice, we will help you navigate the complexities of aged care and find the best financial solutions for your family. If you have any questions or concerns regarding your situation, please call us on 1300 944 011 to speak with an expert aged care adviser today.

Frequently Asked Questions

Listed below are some frequently asked questions about aged care Refundable Accommodation Deposits.

What Can Be Deducted From a Refundable Accommodation Deposit?

Certain aged care fees can be deducted from a Refundable Accommodation Deposit, such as the Daily Accommodation Payment and the Additional Services Fee. An aged care home must allow a Daily Accommodation Payment to be deducted from the Refundable Accommodation Deposit if you request so, but they are not required to allow the Additional Services Fee to be deducted.

What is the Permitted Use of Refundable Deposits?

Generally, a Refundable Accommodation Deposit can be used by an aged care home for capital expenditure purposes, funding of debt, investment under a devised strategy, or commercial loans to other providers by adhering to certain rules.

What are the Benefits of Paying RAD in full?

The benefit of paying a RAD in full is that you will not need to pay a DAP on the unpaid amount. The DAP is non-deductible and calculated based on the Minimum Permissible Interest Rate, which is often greater than the interest on a standard loan. Furthermore, the amount paid towards the RAD is not assessed for Age Pension purposes. However, if paying the RAD in full it is prudent to retain enough funds in your personal name to cover expenses for the remainder of your life.

Is it Better to Pay RAD or DAP?

It is generally better to pay the RAD rather than a DAP, provided you have adequate income remaining funds to continue covering aged care costs and personal expenses for the remainder of your life. In saying that, while it might be better to pay the RAD rather than a DAP, this is not the case if you are borrowing funds from a family member or financial institution, due to it resulting in more assets being assessed for means tested care fee purposes.

You might also like:

• Aged Care Fees & Costs
• Who Pays for Nursing Home Care in Australia?
• Refundable Accommodation Deposit Assets Test