A Refundable Accommodation Deposit (RAD) is a lump sum payment made to a residential aged care provider in Australia to cover the cost of accommodation in the aged care Facility. The RAD is held by the provider while the resident lives in the facility and is refunded — generally without interest — to the resident or their estate when the resident leaves or dies.

The RAD is one of two main ways to pay for accommodation in residential aged care, the other being the Daily Accommodation Payment (DAP). Residents can choose to pay as a full RAD, a full DAP, or a combination of both.

RADs are protected under the Australian Government's Accommodation Payment Guarantee Scheme, which protects residents in the event of provider Insolvency, subject to scheme conditions.

How a RAD works

When a person enters residential aged care, the provider sets an advertised accommodation price (within regulatory limits). The resident can choose to pay the full price as a RAD, as a DAP calculated using a government-set Interest Rate, or as a combination of partial RAD and partial DAP.

If paid in full as a RAD, the resident transfers the lump sum to the provider. While the resident lives in the facility, the provider holds the RAD and uses the income to support its operations. The RAD itself remains the resident's property and is refundable.

When the resident leaves or dies, the RAD is refunded to the resident or the estate, generally without interest. The provider has a maximum period (usually 14 days for departures and longer for deceased estates) to refund the RAD, subject to specific rules.

Residents can request that any agreed daily care fees or other amounts be deducted from the RAD rather than paid separately, in which case the RAD balance reduces over time.

Who commonly uses RADs?

RADs are commonly used by:

  • Residents entering residential aged care with significant home Equity or other Assets
  • Families using the proceeds of selling the family home to pay for aged care
  • Residents who prefer a single upfront payment over ongoing daily fees
  • Residents whose financial advisers recommend a RAD for means testing or interest cost reasons
  • Estates planning where the RAD refund will return to beneficiaries on death

Not all residents choose a RAD. Some prefer to keep Capital invested elsewhere and pay accommodation as a DAP.

Key features

  • Lump sum payment to a residential aged care provider for accommodation
  • Held by the provider while the resident is in care
  • Refundable to the resident or estate on departure or death
  • Backed by the Government Accommodation Payment Guarantee Scheme
  • Can be combined with a partial DAP
  • Daily care fees and other amounts may be drawn from the RAD if agreed
  • Specific rules for advertised prices and resident agreements

Potential benefits

RADs can offer several potential benefits when chosen carefully.

Single upfront payment simplifies ongoing finances by removing the need to find daily accommodation payments from Cash Flow.

Refundable structure preserves the underlying capital, which is returned to the resident or estate, supporting estate planning and family arrangements.

Government guarantee provides protection in the event of provider insolvency, subject to scheme conditions, giving residents and families confidence.

Means testing considerations may favour a RAD for some residents, as the RAD itself is generally exempt from the Centrelink asset test but is included in the aged care means test for fee calculations.

Key risks and limitations

RADs also have important considerations and trade-offs.

  • Opportunity cost of locking up a large sum without earning interest
  • Provider risk, mitigated but not eliminated by the government guarantee
  • Centrelink and aged care means testing can be complex
  • Timing of refund after departure or death may take days to weeks
  • Decisions are often made quickly under stress, increasing the chance of suboptimal choices
  • Funds tied up in a RAD are not directly available for other needs

Tax, social security and aged care considerations

RAD payments are not assessable income and do not produce interest income for the resident. They are generally exempt from the Centrelink asset test for Age Pension purposes, but are included in the aged care means test that determines means-tested care fees and daily accommodation contributions.

RAD refunds at the end of care are not generally taxable, although how the refund is subsequently used can affect means testing for the estate or surviving family members.

Aged care providers must publish maximum advertised accommodation prices and follow specific rules about how RADs are managed, refunded and reported. The Australian Government regulates the sector and operates the Accommodation Payment Guarantee Scheme.

How it fits into Retirement Planning

RADs play an important role in aged care planning for many Australians. Decisions involve weighing the cost of paying a DAP (interest-equivalent payments) against the opportunity cost of paying a RAD (foregone Investment returns).

Specialist aged care financial advice can help families navigate the complex interaction between RAD/DAP choices, Centrelink, aged care means testing and broader estate planning.

Many families fund RADs through the sale of the family home, downsizer contributions or other restructuring. The right approach depends on individual circumstances, preferences and family dynamics.

Common mistakes to avoid

  • Making aged care payment decisions under pressure without specialist advice
  • Ignoring the impact of RAD/DAP choices on Centrelink and aged care fees
  • Failing to consider the implications for estate planning
  • Not understanding the timeline and process for refunds
  • Treating the RAD purely as a 'safe' deposit without weighing opportunity cost
  • Overlooking the role of the family home in aged care funding

Questions to ask before using this instrument

  • What is the advertised accommodation price for the chosen facility?
  • How does a full RAD compare with a full DAP or a combination?
  • What is the impact on Centrelink and aged care means-tested fees?
  • What sources of funds are available to pay the RAD?
  • How does the RAD interact with the broader estate plan?
  • Have I obtained specialist aged care financial advice?

Summary

A Refundable Accommodation Deposit (RAD) is a lump sum payment for residential aged care accommodation that is held by the provider during the resident's stay and refunded on departure or death. RADs offer simplicity, capital preservation and a government guarantee, but also involve opportunity cost and complex interaction with means testing. Specialist aged care financial advice can help families make informed decisions that balance financial outcomes with personal and family circumstances.