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Information Sheet 16 - Accommodation Bonds

Information sheet providing detailed information in relation to community and residential care issues for older Australians, young people with disabilities and their carers and the associated costs

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Accommodation payments

There are two types of accommodation payments that may be payable to aged care homes:

• Residents requiring high care other than on an extra service basis may be asked to pay an accommodation charge (see Information Sheet Accommodation Charge)
• Residents requiring low care or entering an extra service place (at high or low level care) may be asked to pay an accommodation bond.

Respite residents cannot be asked to pay an accommodation payment.

What is an accommodation bond?

An accommodation bond (the bond) is an amount you may be asked to pay when you require low care or enter an extra service place. It is like an interest free loan to the aged care home and by law it must be used by the home to improve building standards, and the quality and range of aged care services provided.

A bond can only be charged by an aged care home that is certified as meeting minimum building and care standards. You are entitled to know the home’s certification status.

The aged care home is allowed to deduct monthly amounts, called retention amounts, from the bond for up to five years. The Government sets the maximum retention amount, currently $299.00 a month. This amount is fixed at the rate applying at your date of entry. The balance of the bond is refunded to you or your estate when you leave the home.

How much bond will I pay?

There is no fixed amount for a bond. The amount of the bond is to be agreed between you and the aged care provider.

Bond sizes can vary widely between residents in an aged care home as well as between homes, even in the same locality. However, you cannot be charged a bond which would leave you with less than $36,000 in assets.

What are my payment options?

There are a number of ways to pay an accommodation bond, including:

• a lump sum
• periodic (fortnightly or monthly) payments
• a combination of lump sum and periodic payments.

If you agree to pay the bond as a lump sum you cannot be required, by the aged care provider, to pay that lump sum during the first six months following entry, although you can choose to do so.

However, you will need to agree to the size of the bond when you enter, and you may be charged interest on the bond amount from the time you enter the aged care home. The interest rate is set at date of entry, up to the maximum permissible interest rate. From 1 January 2010 to 31 March 2010 the maximum permissible interest rate is 7.95%.

Determining a resident’s assets

Centrelink or the Department of Veterans’ Affairs (DVA) may assess a resident’s assets on behalf of the Department of Health and Ageing, even if the resident does not receive a pension. Having an assets assessment is not compulsory unless a person wants to find out if they are eligible for government assistance with their accommodation costs for permanent residential aged care.

Prospective residents may instead choose to negotiate the payment of an accommodation bond with an aged care home directly rather than having an assets assessment undertaken.

Will my home be "protected"?

The value of your former home will not be counted as an asset if, at the time of the assets assessment or the date of the person’s entry to care (whichever is the earlier):

• your spouse, partner or dependent child is living there
• a carer eligible for an income support payment has lived there for at least two years
• a close relative who is eligible for an income support payment has been living there for at least five years.

Gifting

Assets gifted away from 10 May 2006 over $10,000 in a single financial year or $30,000 in a five financial year period will be included in your assets assessment.

As a result, you may not be eligible for government assistance with your accommodation costs.

If in any doubt, you should call Centrelink on 1800 227 475^* or the DVA on 13 32 54^*.

What if I move to another aged care home?

If you have previously paid a bond and then move to another aged care home within 28 days, your bond can be transferred to the second aged care home. You cannot be asked to pay a bond to the second aged care provider that is higher than the amount refunded by the first aged care provider, unless there is a gap of more than 28 days between leaving the first home and entering the second.

If you do move, only the balance of the five year bond retention period will carry over to the new home.

If you paid a bond on entry to low care and subsequently move to another aged care home to receive high care you may, with the agreement of the aged care provider, either:

• have the balance of the bond fully refunded (less retention amounts) from the previous aged care home and (if liable) pay the daily accommodation charge in the new aged care home
• transfer the balance of the bond to the new aged care home. In this case only the balance (if any) of the five year retention period will carry over to the new aged care home.Top of page

What are the safeguards for residents?

You can only be asked to pay the bond if you can afford to do so.

You cannot be asked to pay the bond unless you have entered a bond agreement.

This agreement sets out your rights and responsibilities. You have up to 21 days after entering an aged care home to enter into the bond agreement.

Where a person is unable to enter an agreement due to mental impairment, the agreement must be entered into within 21 days of a guardian being appointed.

Any change in the level of your assets after you have entered the home does not affect the amount of bond you agreed to pay.

When you pay a lump sum bond the aged care provider must:

• guarantee in writing to repay the bond balance within the statutory time periods, which is within 14 days of giving notice of your departure, on the day you leave if you notify your aged care provider of your departure more than 14 days before you leave, within 14 days after you leave if no notice is given or in the case of death, 14 days after the approved provider is shown probate or letters of administration;
• provide you with a copy of the bond agreement and a written guarantee within 7 days of the agreement being signed.

Every October, the aged care provider must also:

• provide information to you about the number of accommodation bond balances that were not refunded within the statutory time periods over the past financial year;
• give you a written statement (including an audit opinion on that statement) about the aged care provider's performance against the prudential requirements; and
• a copy of your entry in the bond register.

Aged care providers must also provide this information to prospective residents on request. Residents and prospective residents may also request the provider's financial accounts.

If the aged care provider does not refund your bond balance on the day you leave, interest will be paid by the aged care provider on your bond balance until
it is refunded.

Furthermore, in the event your aged care provider becomes bankrupt or insolvent, the Government will repay your bond balance entitlement, including any interest that has accrued on the bond balance.

What if I am not eligible to pay a bond?

If you cannot afford to pay the bond you will not be asked to do so, but you will still get the care you need. Aged care providers receive a full rate of Government assistance for residents in a certified residential aged care facility whose assets are assessed as less than 2.25 times the maximum annual single basic age pension rounded to the nearest $500.00 (currently $36,000).

How do bonds affect pensions?

Lump sum accommodation bonds paid by residents in aged care homes are exempt from the pension assets test.

The former home is exempted from the pension assets test for two years for all people entering residential care (and longer if the person's partner remains living in the home).

If you rent out your former home to pay some or all of your bond by periodic payments, the former home and the rental income is exempt from the pension assets and income tests for as long as you are liable to pay a periodic payment.

Financial Hardship Assistance

Financial hardship provisions are there for people who would face genuine financial hardship if they were required to pay an accommodation payment. To receive an application for financial hardship assistance call the Aged Care Information Line on 1800 500 853^*.

Financial Information

Financial decisions, for instance about how you pay an accommodation bond, can have different effects on pensions, aged care fees and tax. You are advised to seek expert financial information to help make the decisions that are best for you.

A free Financial Information Service is available through Centrelink. To make an appointment call Centrelink on 13 23 00^*.Top of page

Example 1: How to calculate the options for paying a bond as a periodic payment

Mrs Chan owns her home. She is a widow and about to go into low care.

Her house is worth about $150,000 and her unemployed daughter, who has cared for her for the last six years, is living in the family home. Therefore, her home is not considered as an asset in relation to payment of an accommodation bond.

Mrs Chan's other assets amount to $106,000. Her total assets are $106,000.

She must be left with at least $36,000. Thus, the maximum bond Mrs Chan can pay is $70,000.

The aged care provider asks her to pay $60,000.

Mrs Chan has read that she can pay a bond in periodic payments instead of as a lump sum, or as a mixture of both.

The periodic payment is made up of two components. Firstly, the amount that the aged care provider can deduct annually for up to five years, and also the interest that the aged care provider would normally earn on the lump sum.

The aged care provider explains that Mrs Chan can make this payment either monthly or fortnightly. She agrees to pay a periodic payment as this will not require her to change her financial arrangements.

At an interest rate of 10%** per annum, the cost of this payment would be the retention amount the aged care provider can keep of $299.00 a month, plus the interest of $500.00 a month. The total payment would be $799.00 a month.

Mrs Chan agrees to pay $799.00 every month to cover this cost. This is instead of paying $60,000 as a lump sum.

Mrs Chan's payments will reduce by $299.00 a month after the maximum five year retention period.

Example 2: How to calculate the option for paying the bond as a mixture of lump sum and periodic payment

Mrs Winter owns her home. She is a widow and about to go into residential care.

Her house is worth about $150,000. Mrs Winter's other assets amount to $87,500. Her total assets are $237,500.

She must be left with at least $36,000. Thus, the maximum bond Mrs Winter can pay is $201,500.

The aged care provider asks her to pay $100,000.

Mrs Winter has read that she can pay a bond by a lump sum, in periodic payments, or a combination of both. If she pays a combination of both and the lump sum is large enough to cover the amount the aged care provider can keep, she will only need to pay a small periodic amount made up of the interest that the aged care provider would normally earn on the lump sum.

The aged care provider explains that Mrs Winter can make this payment either monthly or fortnightly.

She agrees to pay a mixture of lump sum and periodic payment as this best suits her situation. Her lump sum payment is $70,000 leaving $30,000 on which she must pay interest.

At an interest rate of 10%**, the annual cost of the periodic payment would be the interest of $3,000 a year or $250 a month.

So as well as paying $70,000 as a lump sum, Mrs Winter agrees to pay $250 every month. In this way she meets her agreement for a $100,000 total bond.

Mrs Winter also decides to rent out her former home and uses the rental income to pay the periodic payments. Her home is exempt from the pension assets test and the rental income is not counted for the pension income test while she is required to make the periodic payments.

The amount of the bond returned to Mrs Winter or her estate, after deducting the retention amounts, on leaving would be:
• after one year $66,412
• after two years $62,824
• after three years $59,236
• after four years $55,648
• after five years or more $52,060

** The figure of 10% has been used for ease of calculation. It should be noted that the maximum permissible interest rate which can be charged is announced quarterly by the Australian Government Department of Health and Ageing. The current rate can be obtained by contacting the Aged Care Information Line on 1800 500 853^*.

Note: Reference to a partner and/or couple includes both opposite and same sex couples.

*Cost of phone calls

Calls to 1800 numbers are generally free to the caller when made from a land line.
Calls to 13 or 1300 numbers are charged at a low fixed amount to the caller when made from a land line.
All calls made from mobile phones are charged at the rates applicable to each phone provider.
All calls made from public phones are charged at the rates applicable to each phone provider.

Disclaimer: This document is only a guide to the Government’s law and policies, and cannot take account of individual circumstances. The Australian Government Department of Health and Ageing recommends that you seek appropriate professional advice relevant to your particular situation.

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