3.4.4 Accommodation Bonds

An accommodation bond is defined within the Aged Care Act 1997 as being an amount of money, payable to an approved provider in respect of a person's entry into a residential care service or flexible care service, not being amounts that accrue daily.

The limitation of the accommodation bond to the amount paid in respect of entry into care requires that components of the payment which are identified as unrelated to the initial entry cannot be recognised as part of the accommodation bond. For example, a person may agree to the advance payment, by lump sum, of their ongoing basic fees at the time of negotiating the accommodation bond with the provider. As this payment is in respect of ongoing costs, rather than to enter care, and comprises amounts that are otherwise paid daily, it must be excluded from the allowed accommodation bond amount.

3.4.4.1 Who pays an accommodation bond

An accommodation bond is like an interest-free loan to the aged care facility, that may be payable by certain care recipients, dependent on the level of care they receive and their capacity to pay.

3.4.4.2 How is the amount payable for an accommodation bond calculated

The amount a person pays as an accommodation bond is negotiated and agreed between the person requiring care (or their representative) and the aged care facility, but it cannot leave a resident with residual assets below the minimum level. Some facilities may decide not to charge accommodation bonds.

Options for payment of accommodation bond

An accommodation bond can be paid as:

• a lump-sum;
• periodic payments;
• a combination of lump sum and periodic payments; or
• deferred and paid out of the proceeds of the estate of the resident.

3.4.4.3 Time frame to pay a lump sum accommodation bond

Where the bond is to be paid in a lump sum, the resident has one month and one day from the due date as set out in the bond agreement in which to pay the bond in full without penalty. A resident can choose not to pay the accommodation bond for six months following entry to the aged care facility, but interest will accrue from the date of entry.

3.4.4.4 Drawdown from accommodation bonds

The bond money is held by the facility which can deduct or drawdown a monthly retention amount for a maximum of five years. The retention amount is capped from the date of entry to care and is specified in the resident agreement, but can be no higher than the capped maximum retention set by DSS. The balance of the bond is refundable to the resident, or estate when the resident leaves the facility or dies.

3.4.4.5 Periodic payment of accommodation bond

Where a person chooses to pay a bond as periodic payments, each payment may consist of different components which cover the:

• drawdown the aged care facility could have made on the bond had it been paid as an equivalent lump sum, and/or
• interest the facility could have earned on the bond had it been paid as an equivalent lump sum.

3.4.4.6 Bond paid wholly or partly by periodic payments

If a person in residential aged care rents their former home and is liable to pay the Accommodation Bond wholly, or partly, by periodic payments, then the rental income received and the former home are exempt from the income and assets tests. The exemption applies for as long as the person is making periodic bond payments and continues to own and rent out the former home.

This exemption generally does not apply if the accommodation bond agreement specifies that the accommodation bond will be paid by a lump sum payment only. However, if the parties enter into an arrangement to pay some of the amount periodically post-entry, this can be recognised as a "liability to pay" provided there is sufficient evidence to the satisfaction of the delegate.  Evidence may include a letter from the facility outlining the specifics of the periodic payment commitments, or the resident’s bond or fee statement confirming actual periodic payments being made, and accepted by the facility to adjust the outstanding bond balance.

Once an agreement is entered into, the amount of accommodation bond that is paid cannot be changed, even if the person's circumstances change. However the way that the bond is paid can be varied, with the consent of both the resident and the aged care provider. As such, if a resident informs DVA of changed payment arrangements, the original resident and/or accommodation bond agreement should be revised so that it provides for an amount of the accommodation bond to be paid by periodic payments.

3.4.4.7 Periodic payments include interest-only payments

Periodic payments can only include a retention component (representing the allowed drawdown amounts) for a maximum of five years. For the remainder of the person's period in aged care, the periodic payment would be based only on the interest income the provider could have derived from the full lump equivalent.

Where any part of the agreed lump sum accommodation bond is not paid in full, the periodic payment of the outstanding amount, whether comprising a combination of retention amounts plus interest, or solely interest, are still regarded as being periodic payments for aged care purposes.

Therefore, as interest-only payments still satisfy the test of being a periodic payment of the accommodation bond, the exemption of the former principal home and the rental income may continue beyond the maximum five year period allowed for drawdown amounts.

3.4.4.8 Interest-only payments due to delays in paying agreed lump sum amounts

A person may have an agreement to pay an accommodation bond fully by lump sum, but the actual payment is delayed. Where a person is charged interest-only payments until such time as the agreed full lump sum payment is finalised, this situation is not regarded as representing a liability to make a periodic payment, as the arrangements fall outside the scope of the agreement.