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Information Sheet 16 - Accommodation Bonds for Residential Aged Care

An information sheet providing detailed information in relation to accommodation bonds.

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Accommodation payments

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

• Residents requiring high care other than on an extra service basis may be asked to pay an accommodation charge (Refer to Information Sheet 15 – The Accommodation Charge for Residential Aged Care for more detail).
• Residents requiring low care or entering an extra service place (at high or low level care) may be asked to pay an accommodation bond.

Whether a resident requires high care is determined at the time of entry to a permanent place by the evidence available at that time. Relevant evidence may include the assessment by an Aged Care Assessment Team, assessment by the aged care home if the person has been receiving respite care, and other evidence such as doctors' or hospital records.

Residents in respite care cannot be asked to pay an accommodation payment.

What is an accommodation bond?

An accommodation bond (bond) is an amount a resident may be asked to pay when they require low care or enter an extra service place. A bond is paid to an Australian Government subsidised aged care provider called an approved provider. The approved provider is the organisation that owns and operates an aged care home.

A bond is like an interest free loan to the approved provider and, for a bond charged on or after 1 October 2011, by law must only be used for permitted uses. These permitted uses include: capital expenditure, refunding bonds, refunding debt accrued for capital expenditure and refunds, investment in particular financial products and loans for capital works or investment in particular financial products.

A transition period to allow approved providers to prepare to comply with the permitted uses will operate until 30 September 2013. An approved provider may operate more than one aged care home and bonds can be used for capital works at any of their aged care homes.

A bond can only be charged for entry to an aged care home that is certified as meeting minimum building and care standards. Information on a home's certification status can be found on the Department of Health and Ageing's (the Department) website at www.health.gov.au or by calling 1800 200 422^*.

An approved provider is allowed to deduct monthly amounts, called retention amounts, from a bond for up to five years. The Australian Government sets the maximum retention amount. For the current maximum retention amount see the Department’s website at www.health.gov.au or call 1800 200 422^*. The bond balance (i.e. the bond minus retention amounts and any other allowable deductions) must be refunded to the resident or their estate within specified timeframes when they leave the aged care home.

How much bond may a resident pay?

There is no fixed amount for a bond. The amount of the bond is to be agreed between a resident and the approved provider.

Bond sizes can vary widely between residents in an aged care home as well as between homes, even in the same locality. A resident cannot be charged a bond which would leave them with less than 2.25 times the basic aged pension amount. This is called the minimum permissible asset value. For the current minimum permissible asset value see the Department's website at www.health.gov.au or call 1800 200 422^*.

Accommodation bond agreements

The bond agreement may be set out in the resident agreement or it may be set out in a separate document.

The payment of a bond must be backed by a bond agreement. A bond agreement is a contract between a resident and the approved provider about the bond and must include particular matters such as the date or dates that the bond is due to be paid and the interest payable if the bond is paid late. These matters must be agreed to by the resident and the approved provider before a bond can be paid.
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What are the payment options?

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

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

If a resident agrees to pay their bond as a lump sum, they cannot be required to pay that lump sum during the first six months following entry, although a resident can choose to do so.

If a resident does not pay their bond in full on the day of entry, interest may be charged on the amount of the bond outstanding, depending on the bond agreement. The interest rate is set at the date of entry, up to the maximum permissible interest rate. The maximum permissible interest rate is reviewed quarterly and can be found at the Accommodation Bond Balance Refund Interest Rates web page or by calling 1800 200 422^*.

Determining a resident’s assets

Centrelink or the Department of Veterans’ Affairs (DVA) undertake assets testing for entry into permanent residential aged care on behalf of the Department. Centrelink undertakes all assessments except those for people who receive a means tested pension from DVA. An assets assessment can be undertaken before a person enters residential aged care.

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

Will a resident’s home be protected?

The value of a resident's former home will not be counted as an asset if, at the time of the assets assessment or the date of entry into care (whichever is earlier):

• the partner or dependent child is living there; or
• a carer eligible for an Australian Government income support payment has been living there for at least two years; or
• a close relative who is eligible for an Australian Government 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 over five financial years will be included in a resident's assets assessment.

As a result, a resident may or may not be eligible for government assistance with their accommodation costs.

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

What happens when a resident leaves an aged care home?

When a resident leaves an aged care home, the bond balance must be refunded within certain timeframes, unless the resident agrees otherwise to secure re-entry to the aged care home. The bond balance must be refunded:

• if the resident does not give more than 14 days notice of departure - within 14 days of them giving notice
• if the resident gives more than 14 days notice - on the day that they leave the aged care home
• if no notice of departure is given - within 14 days after the resident leaves the aged care home
• in the case of death - within 14 days after the approved provider is shown probate or letters of administration.

If a resident has previously paid a bond in full and moves to another aged care home within 28 days of leaving the first aged care home, the bond balance can be transferred to the second aged care home, subject to the agreement of the resident and the new approved provider. A resident cannot be asked to pay a bond to the second aged care home that is higher than the amount refunded by the first aged care home, unless there is a gap of more than 28 days between leaving the first aged care home and entering the second.

If a resident moves, the balance (if any) of the five year bond retention period will carry over to the second aged care home. This means, for example, that if retention amounts have already been deducted from the bond for three years by the first aged care home, the second aged care home can only deduct retention amounts for another two years.

If a resident has paid a bond on entry to low care or an extra service place and moves to another aged care home to receive high care they may:

• have the bond balance fully refunded (less retention and other applicable amounts) from the previous aged care home and (if liable) pay the daily accommodation charge in the second aged care home
• with the agreement of the second aged care home, transfer the bond balance to the second aged care home. In this case only the bond balance (i.e. the bond minus retention amounts) will carry over to the second aged care home.

In cases where a resident dies, the approved provider may choose to refund the bond balance without being shown evidence of probate or letters of administration. They do, however, have a right to ask to see this documentation before refunding the bond balance. This ensures that the refund is dealt with in accordance with the resident’s wishes, including as set out in their will. It also protects the approved provider by ensuring that they can identify who is entitled to receive the refund.

Approved providers are required to pay interest on the bond balance at the base interest rate for the period from the day after the resident left the service to the date the refund is due. After that, approved providers are required to pay interest at the maximum permissible interest rate up to and including the date that the bond balance is refunded.

The Australian Government sets the base interest rate and the maximum permissible interest rate. The rates are reviewed quarterly and can be found at the Accommodation Bond Balance Refund Interest web page.

Residents may agree to delay the bond balance refund to secure re-entry to the home. Late payments of bond refunds that are not agreed to for this purpose can be reported to the Aged Care Complaints Scheme on 1800 550 552^*.
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What are the safeguards for residents?

A resident cannot be charged a bond which would leave them with less than 2.25 times the basic aged pension amount.

Approved providers must document conditions of the bond agreement within 21 days of the resident after entering an aged care. The bond agreement must set out the date that the bond is to be paid, and any interest payable by the resident if they do not pay the bond by the agreed date.

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

The bond agreement must set out the resident’s rights and responsibilities.

Any change in the level of a resident’s assets after they have entered the home does not affect the amount of bond they agreed to pay within their bond agreement.

The Australian Government guarantees the repayment of the resident’s bond if the approved provider becomes insolvent and is unable to refund bond balances.

What information are residents entitled to?

If an approved provider asks a resident to pay a bond, they must give the resident specific information before the resident enters the home. This includes:

• the amounts of bonds charged by the approved provider
• payment options
• retention amounts and periods of when they are charged
• details about interest payable by the resident on late payments, and the right of the approved provider to deduct these from the bond
• when a bond is not required or is refundable
• refund arrangements
• the prudential arrangements for the bond balance
• the requirement to be left with at least the minimum permissible asset value – see How much bond may a resident pay? above.

Within seven days of entering into a bond agreement, approved providers must provide the resident or their representative with:

• a copy of the bond agreement
• a written guarantee of refund of the bond balance
• a written statement explaining what other information is available on request.

Residents, prospective residents or their representatives can ask for information about the approved provider of the aged care home at any time. The information they are entitled to includes, for the previous financial year:

• a summary of the permitted uses for which bonds have been used
• information about whether the approved provider complied with the requirements for permitted uses of bonds and with the prudential requirements for bonds
• information about the number of bond balances (if any) that were not refunded in accordance with the timeframes set by the Aged Care Act 1997. For entry contributions (payable before 1997), information about the number (if any) that were not refunded in accordance with the entry contribution agreement
• a copy of the independent audit opinion on the approved provider’s compliance with the prudential requirements for bonds
• the approved provider’s most recent statement of audited accounts.

On request, the approved provider must also provide:

• a copy of the resident’s entry in the bond register – if the resident has already paid a bond in part or in full
• from 1 February 2012, a copy of their investment objectives and the asset classes they are investing in – if they are investing bonds in particular kinds of permitted financial products.

Residents, prospective residents or their representatives may request any or all of the above available information. The approved provider must provide the information within seven days of the request, and the information must be correct as at the time of the request.

Within four months of the end of their financial year, approved providers must give each resident or their representative:

• a copy of the resident’s entry in the bond register
• a written statement explaining what other information is available on request.

What happens if a resident is not eligible to pay a bond?

If a resident is assessed as not being eligible to pay a bond they will still get the care they need. Aged care homes receive a full rate of Government assistance for residents (in a certified residential aged care facility) whose assets are assessed as less than the minimum permissible asset value. See How much bond may a resident pay? above.

How do bonds affect pensions?

A lump sum bond that is paid by a resident of an aged care home will be exempt from the pension assets test.

A resident’s former home is exempted from the pension assets test for two years for all people entering residential aged care and longer in certain circumstances. See Will a resident’s home be protected? above.

If a resident's former home is rented out to pay some or all of the bond by periodic payments, the value of the former home and the rental income is exempt from the pension assets and income tests for as long as the resident is liable to pay a periodic payment. The rental income will not affect a resident's aged care fees.
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Financial Hardship Assistance

Financial hardship provisions are there for residents who would face genuine financial hardship if they were required to pay an accommodation payment. See Information Sheet 13 - Financial Hardship Assistance. To receive an application for financial hardship assistance call 1800 200 422^*. The form is also available from the Department's website.

Financial Information Advice

Financial decisions, for instance about how a bond is paid, can have different effects on pensions, aged care fees and tax. Residents are advised to seek expert financial information to help make the decisions that are best for their circumstances.

A free Financial Information Service is available to all people through Centrelink. To make an appointment call Centrelink on 13 23 00^*.

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

Mrs Chan owns her home. Her partner has passed away and she is about to enter low care.

Mrs Chan’s unemployed daughter, who has cared for her for the last six years, is living in the family home; therefore, Mrs Chan’s home is not considered as an asset in relation to payment of a bond.

Mrs Chan's total assets, other than her home, amount to $111,500.

She must be left with at least $41,500. Thus, the maximum bond Mrs Chan can be asked to pay is $70,000.

The approved 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 retention amount that the approved provider can deduct annually for up to five years, and secondly, the interest that the approved provider would normally earn on the lump sum.

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

At an interest rate of 10%^** per annum, the cost of this payment would be the retention amount the approved provider can keep of $323 a month, plus the interest of $500.00 a month. The total payment would be $823 a month.

Mrs Chan agrees to pay $823 every month to cover this cost. This is instead of paying $60,000 as a lump sum.

Mrs Chan's payments will reduce by $323 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

Mr Peterson owns his home. His partner has passed away and he is about to enter low care.

Mr Peterson’s house is valued at $151,000. Mr Peterson’s other assets amount to $90,000; therefore, his total assets are calculated to be $241,000.

Mr Peterson must be left with at least $41,500. Thus, the maximum bond amount that Mr Peterson can be asked to pay is $199,500.

The approved provider asks him to pay $100,000.

Mr Peterson has read that he can pay a bond by a lump sum, in periodic payments, or a combination of both. He elects to pay a combination of both and the lump sum is large enough to cover the amount the approved provider can keep. Mr Peterson will only need to pay a small periodic amount, made up of the interest that the approved provider would normally earn on the outstanding amount, as the retention amounts will be deducted from the lump sum amount.

The approved provider explains that Mr Peterson can make this payment either monthly or fortnightly. Mr Peterson agrees to pay a mixture of lump sum and periodic payment as this best suits his situation. His lump sum payment is $70,000 leaving $30,000 on which he must pay interest.

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

As well as paying $70,000 as a lump sum, Mr Peterson agrees to pay $250 every month. In this way he meets his agreement for a $100,000 bond. Mr Peterson also decides to rent out his former home and uses the rental income to pay the periodic payments. His home is exempt from the pension assets test and the rental income is not counted for the pension income test or the aged care income test while he is required to make the periodic payments.

The amount of the bond returned to Mr Peterson or his estate, after deducting the $318 per month retention amounts, on leaving would be:

• after one year $66,123
• after two years $62,248
• after three years $58,372
• after four years $54,496
• after five years or more $50,620

** 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 calling 1800 200 422^*.

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.

All information in this publication is correct as at September 2012

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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