Demystifying Refundable Accommodation Deposits (RAD) and Daily Payments

For those entering residential aged care who are not classified as "low means" by Services Australia, funding the accommodation payment is often the single largest financial hurdle. Understanding the exact mechanics of the Refundable Accommodation Deposit (RAD) and the Daily Accommodation Payment (DAP) is essential for preserving family wealth while securing quality care.

The Refundable Accommodation Deposit (RAD) Explained

A RAD is a lump sum payment for a room in an aged care facility. Prices vary enormously based on location, facility age, and suite quality, often ranging from $400,000 in regional areas to well over $1,500,000 in premium metropolitan facilities. Crucially, the RAD balance is fiercely protected and guaranteed by the Australian Government. When the resident permanently leaves the facility or passes away, the remaining RAD balance must be refunded to the resident or their estate within strict statutory timeframes (usually within 14 days of probate being granted).

The Daily Accommodation Payment (DAP) Alternative

If a family cannot, or actively chooses not to, liquidate assets to pay a massive lump sum RAD, they can pay a DAP instead. The DAP is calculated using a government-set Maximum Permissible Interest Rate (MPIR) applied directly to the agreed RAD amount. It functions exactly like commercial rent and is entirely non-refundable. For example, if the facility's RAD is $600,000 and the prevailing MPIR is 8.34%, the annual DAP would be $49,840, usually billed in monthly installments.

Strategic Payment Combinations

Families are never legally restricted to choosing just one extreme or the other. You can execute a combination strategy: paying a partial RAD and covering the remaining balance via a proportionally reduced DAP. Furthermore, you can elect to have your ongoing DAP (and even your care fees) deducted directly from your lodged RAD balance over time. While this strategy slowly depletes the original lump sum (thereby reducing the eventual refund to the estate), it can significantly improve ongoing monthly cash flow and completely remove the stress of funding monthly invoices from a fixed pension income.

Because the primary family home is most often the asset liquidated to fund these accommodation costs, understanding how its sale impacts Age Pension asset tests and ongoing means-tested care fees is absolutely vital. Decisions made in haste during a health crisis can cost estates tens of thousands of dollars. Seeking independent, specialized aged care financial advice is strongly recommended before signing any resident agreement.