Accommodation Bonds - Changes to the Aged Care Act
Tal Williams, Partner
The Commonwealth Government has recently introduced the Aged Care Amendment Act 2011 (the Act) which came into effect on 26 July 2011. Prior to the introduction of this Act the Government had identified a lack of clarity in relation to the way that aged care providers could use accommodation bonds. They perceived that the original policy intent had not been clearly articulated in the legislation and that, with the increase in amount of accommodation bonds being held (from $500 million in 1997 to more than $10.6 billion in 2010) the issue needed to be addressed.
Accommodation bonds are principally an unsecured loan paid by the care recipient to a provider.
The Act now prescribes that accommodation bonds can only be used by approved providers for:
1. capital works,
2. investment in financial products,
3. obtaining loans for this purpose; and
4. refunding accommodation bonds.
These limitations have the potential to create cash flow issues for providers and accordingly the previous restrictions on the use of income derived from the bonds, retention amounts and accommodation charges has been lifted. As readers would be aware, Productivity Commissioner’s report (issued on 8 August 2011) has identified the need for reform in the industry and has identified that the tight financial margins that exist in the private, not for profit or Government sectors.
In this context the penalty for breaching the Act ($33,000 per offence) is a penalty that providers in the industry can ill afford. Where there is misuse of accommodation bonds criminal charges can now be laid.
The Department of Health and Aging has also been provided with greater powers to enable them to monitor and investigate utilisation of accommodation bonds, particularly in instances where approved providers are experiencing financial difficulties or appear to be utilising the bonds for non permitted uses.
These changes take effect from 1 October 2011 however a 2 year transition period has been permitted to enable the sector to familiarise itself with the new requirements. Providers should review the legislation as soon as possible and to ensure that they comply. Do not hesitate to contact us if you require any assistance in that regard.
Tal Williams
Partner
T: +61 2 9390 8331
E: tal.williams@holmanwebb.com.au