Tax with Max: Comparing aged care providers

Understanding the difference between retirement villages and aged care, and preparing for the death of an SMSF trustee.

Summary: There are two types of aged care accommodation: Aged care provided by Commonwealth Government-subsidised organisations and retirement villages offering independent living. For facilities regulated by the Government, the maximum Refundable Accommodation Deposit is $550,000. There is no maximum RAD for retirement villages.

Key take-out: When contemplating going into a Commonwealth regulated facility or a retirement village, shop around and achieve the best financial result you can. There are companies that can assist with this.

Key beneficiaries: SMSF trustees and superannuation accountholders. Category: Superannuation.

Comparing aged care providers

Thanks for the clear article in Eureka Report about aged care cost supplements from various government sources (see Tax with Max: Calculating aged care costs, July 8). We have a house worth around $700,000 and $2 million in an SMSF and nothing else, are 73 and 63 with no children. I’m fairly certain that we would have no call on Government funding. Are you able to say anything about what costs we should prepare for in aged care and more appropriately where we should seek such information?

Answer: The first thing to understand when it comes to aged care is that there are two types of aged care accommodation. The first is aged care provided by organisations that are licensed by and receive subsidies from the Commonwealth Government. The second type of aged accommodation is provided by what is often known as retirement villages.

In most cases this second type offers independent living with very little opportunity to provide increased care for residents suffering from illnesses such as Alzheimer’s. One of the major differences between the two types of aged accommodation is that licensed aged care facilities must operate within very strict guidelines, whereas retirement villages do not have the same level of controls placed on them.

The best way of evidencing this difference is the way that accommodation deposits are treated. For Commonwealth Government regulated facilities, since the changes to the regulations were introduced on July 1, 2014, the maximum Refundable Accommodation Deposit is $550,000. If a facility wants to charge a higher RAD it cannot do so until it has received approval from the Aged Care Pricing Commissioner.

When it comes to an RAD for retirement villages there is no maximum amount set. By far the biggest difference between a retirement village and a regulated facility relates to what happens to a RAD when a resident leaves a facility.

The RAD for regulated facilities must be fully refunded to either the resident or their estate, and in addition interest must be paid on the deposit held at a specified interest rate from the date that the resident had to leave the facility.

For retirement villages the treatment of a RAD is more a matter of what the contract states, rather than something that is regulated. For example it is not uncommon for a RAD paid to a retirement village to have an amount that is retained by the owner of the retirement village. This means that when a resident leaves that village they do not get all of the deposit that they paid back.

In addition the calculation of the amount of the RAD paid to a retirement village owner can vary greatly. I recently came across a case where a resident paid a RAD of $200,000 and when they left the facility their unit was valued at $300,000. Under the contract conditions signed by that resident the retention amount was approximately 25 per cent of the current market value, which was deducted from the original $200,000 deposit paid.

This may sound inequitable and harsh, and therefore not something that would be allowed by the authorities, but in fact as these were the terms of the contract signed the retention amount could not be avoided.

The important point to stress when anyone is contemplating going into a Commonwealth regulated facility or a retirement village, is to shop around and achieve the best financial result that you can. There are companies that provide services to people when looking for aged care accommodation that can assist in working out what the best facility will be. In addition they can negotiate a reduction in the RAD.

For example I have a client that needed to be admitted to an aged care facility where the stated RAD was $550,000. The consultant assisting my client was able to negotiate with the facility and have the RAD reduced to $500,000.

Where people are placed in the position of having to accept a place in any facility that can offer them a place, in some circumstances they can be left with his little as $46,000 after paying an RAD.

As another word of caution do not think that where a retirement village or Commonwealth regulated facility is operated by a religious organisation that you will receive any better treatment or conditions. The example I gave above was in fact a contract that had been signed with a facility operated by an organisation associated with the Baptist Union of Victoria.

If you want to find out more information about the aged care system there are two sites operated by the government that have a lot of information. The first of those sites is www.myagedcare.gov.au and the second is the Department of Social Services website at www.dss.gov.au.

Looking for aged care consultants

Can you tell me where to find a consultant who specialises in the aged care system in Canberra?  I have so far not been able to find one.

Answer: I did a Google search on “aged care placement services Canberra ACT” that produced a number of service providers that should be able to help you. Unfortunately none of the aged care services are based in Canberra but some are situated in Sydney that may be able to help you.

Preparing for the death of an SMSF sole shareholder director

What happens if an SMSF sole shareholder director dies without having executed a death benefit nomination of some sort?

Answer: When the sole member director of a trustee company dies their legal personal representative (LPR) (in most cases this will be their executor) is usually appointed as director to take over their role. Under the superannuation regulations a superannuation fund should be wound up within six months of the death of the member.

The taking over of the role of director from the deceased by their LPR is not automatic. In fact there is no requirement on the LPR to accept the appointment as director of the trustee company. It would be highly unusual for an LPR not to take over as director of a trustee company so that the SMSF can be wound up and their superannuation benefit paid to their estate.

When super proceeds are paid to an estate, unless there are dependants that will benefit from the estate, tax will be paid on the superannuation passing to the beneficiaries of the will at 17.5 per cent. When an SMSF has two members, in most cases this will be a husband and wife, and one of them dies, this should prompt a review of the SMSF.

If nothing is done the situation outlined above, where the beneficiaries of the will receiving the superannuation end up paying 17.5 per cent tax, will eventuate. Instead a review of the total value of the SMSF should be made, an estimate done of how much needs to be in the superannuation to meet the living requirements of the surviving member of the SMSF, and consideration given to the superannuation benefits being withdrawn tax-free by that surviving member.

The superannuation proceeds can then either be given to the people who would eventually benefit from the surviving member’s will, or can be put into a structure such as an insurance bond that the surviving member still has control of, that their beneficiaries will benefit from when they pass away.


Max Newnham is a partner with TaxBiz Australia, a chartered accounting firm specialising in small businesses and SMSFs. Also go to www.smsfsurvivalcentre.com.au.

Note: We make every attempt to provide answers to readers’ questions, however, answers are of a general nature only. Subscribers should seek independent professional advice for more in-depth information that is specific to their situation.

Do you have a question for Max? Send an email to askmax@eurekareport.com.au