A recent Administrative Appeals Tribunal decision (Whitby & Secretary, Department of Health) has shed light on the treatment of a loan that is received by a care recipient when it is applied to the purchase of a Refundable Accommodation Deposit (RAD).
In this case, the mother in a family needed to enter a residential aged care facility which required the payment of a Refundable Accommodation Deposit. Her husband obtained a loan of $120,000 to fund part of this cost from their son and daughter, with loan agreements put in place.
The previous treatment by Department of Human Services had been that the loan did not reduce the value of the asset to be counted in assessing means-tested care fees, so the full value of the RAD was to be applied. The AAT decision has overturned that treatment, with the loan balance being deducted from the RAD value.
A care recipient does always of course have the option of paying a Daily Accommodation Payment (DAP) – which is effectively a decision to finance the RAD. The rate as at 1 January 2016 is 6.22% per annum.
Although this ruling has changed the interpretation, it isn’t entirely clear as to whether there is a large benefit to arranging a loan from family members, rather than using the DAP. In this case, the loan had interest capitalising so it may provide some benefit where the person entering care is asset rich, but cash poor, while other family members have sufficient capital and other income available that they do not need to receive their return immediately, so long as it is later received from the estate.
There is also the possibility that this interpretation might be appealed or legislation updated, given the decision was contrary to the interpretation applied by the Department of Human Services – so practitioners should ensure they review current rules before providing advice.