Clarification – RADs not reduced by loans

Loans used to pay a refundable accommodation deposit (RAD) will not reduce the RAD’s assessable value for means-test amount (MTA) calculations.

This position has been clarified through changes to the Subsidy Amendment (Flexible Care Subsidy and Other Measures) Principles 2016 on 4 October 2016 which have immediate effect.

This resolves the uncertainty created last year by the AAT case of Whitby versus Department of Health in which the decision was reached that the value of the RAD could be reduced.

Advice implications

If a client moving into residential aged care borrows money from children, family members or other third parties to pay the RAD, the full value of the RAD paid is an assessable asset for MTA calculations even if a formal loan agreement is in place.

This means that the loan increases assessable assets and may result in a higher means-tested fee, but overall may still provide advantages by not paying the daily accommodation payment (DAP).

If the debt is secured against other assets, the market value of those secured assets can be reduced.

RADs are still exempt assets when calculating age pension (or other means-tested entitlements) under the Centrelink/DVA assets test.