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Aged Care Alert

Amendments to the Subsidy Principles 2014: The end of the third party RAD?

| Published by Victor Harcourt, Anita Courtney

A recent amendment to the Subsidy Principles 2014 is likely to discourage families from paying “third party RADs” for residents.

In the 2015 case of Whitby and Secretary, Department of Health, the Administrative Appeals Tribunal ("AAT") decided that a Refundable Accommodation Deposit ("RAD") paid by a resident’s family member should not be counted as asset for the purposes of assessing the resident’s means tested care fees. The reason was that the family member had secured their loan by way of a security or “charge” over the RAD in favour of the family member.

The Tribunal determined that the value of the resident’s RAD should be reduced by the amounted loaned to the resident by their family member. The reason for this was that s 7 of the Principles incorporates a specific provision of the Social Security Act 1991 (”SSA”) which states that a charge or encumbrance over an asset will reduce the value of that asset.

The effect of the AAT’s decision was that residents’ families could contribute to their loved one’s accommodation costs without those funds counting towards the resident’s assets and thereby increasing the means tested care fee they are required to pay.

A recent change to the Principles has amended section 47 to exclude the operation of the relevant provisions of the SSA.

This means that a RAD paid by a family member will now constitute part of the resident’s assets even if the family member’s contribution is only a “loan” to the resident. The effect of this is that the resident may have to pay a higher means tested fee.

The exclusion of the provisions that otherwise apply in the SSA is inconsistent with the treatment of other assets which are subject to a security. In Russell Kennedy’s view, it is also unfortunate as it will deter families from contributing to residents’ accommodation costs, thereby reducing the ability of financial disadvantaged residents to access a higher standard of accommodation.

For more information, please contact Victor Harcourt (03 9609 1693) or Anita Courtney (03 8602 7211).