Refundable deposits are an important tool that can be used to generate additional income for the business.
You can use refundable deposits on the following permitted uses:
- capital expenditure as specified by section 62 of the Fees and Payments Principles, or the repayment of debt accrued for the purposes of capital expenditure
- investing in permitted financial products
- making a loan where certain conditions are met
- refunding refundable deposits, or repayment of debt accrued for the purpose of refunding refundable deposits
- repay debt accrued before 1 October 2011 if accrued for the purpose of providing aged care to care recipients
- to meet reasonable business losses that are incurred during the first 12 months that the approved provider receives residential care subsidy.
The following video provides a comprehensive introduction into the permitted uses of refundable deposits.
Provider obligations of refundable deposits
Having an effective governance system in place is critical in ensuring you are only using refundable deposits on permitted uses, and you can refund refundable deposits as they fall due. Further information around governance systems can be found on the Governance Standard page.
Refundable deposits must not be used:
- to cover the normal day to day costs of operating a service such as staff wages or the purchase of consumables
- for general repairs and maintenance
- on any other business activity other than residential aged care (for example independent living units or retirement villages)
- for personal gain or gratification.
If you are planning to use refundable deposits on permitted uses, please review the Permitted Uses of Refundable Accommodation Deposits fact sheet for details on your obligations.
You should seek legal advice if you are unsure about any permitted use expenditure. Regulatory actions and sanctions can be imposed if you do not comply with one or more of your prudential obligations.
The following video details providers obligations in managing refundable deposits.
Capital expenditure & repaying capital expenditure debt
The primary intent of this permitted use is to give providers a source of funding for investment in residential and flexible aged care infrastructure. Capital expenditure is often used to undertake new projects or investments and to improve services for residents.
You may use refundable deposits, if it is reasonable under the circumstance, for expenditure to:
- acquire land on which an existing residential or flexible aged care service is built
- acquire land for building residential care services or flexible care services
- acquire, build or significantly alter premises for providing residential care or flexible care
- acquire or install furniture, fittings or equipment used in providing residential care or flexible care. This is a permitted use where the premises are initially erected or following an extension, a significant alteration or significant refurbishment
- pay for costs that are directly attributable to the above expenditure.
You can use refundable deposits to repay debt that has been accrued for the purposes of the capital expenditure outlined above.
Investments
Refundable deposits can be invested in the permitted financial products set out in the Aged Care Act to generate additional income. The profits generated from your investments can be used to improve your services however you choose.
If you are investing or planning to invest refundable deposits in permitted financial products, you will need to implement and maintain an Investment Management Strategy (see s50 of the Fees and Payments Principles). Please read the Investment Management fact sheet for further information on your responsibilities when investing refundable deposits.
Refunding refundable deposits & repaying refunding debt
It is a permitted use for refundable deposits to be used to refund refundable deposits. When refunding, it is important that you maintain your nominated liquidity, and that you refund refundable deposits in accordance with the Aged Care Act. For further information on these requirements, visit the Liquidity Standard page.
Loans
The permitted use arrangements recognise the diversity of providers and the wide range of corporate structures that are utilised within the aged care sector. The arrangements ensure that there is flexibility to move refundable deposits between different entities, provided appropriate safeguards are in place.
You can use refundable deposits to make loans, however, the following conditions must be satisfied:
- the loan is not made to an individual
- the loan is made on a commercial basis
- there is a written agreement in relation to the loan
- it is a condition in the written agreement that the money loaned will only be used for capital expenditure, investing in financial products, refunding refundable deposits, or repaying debt accrued for the purposes of capital expenditure or refunding refundable deposits
- the agreement includes any other conditions specified in the Fees and Payments Principles.
If making loans with refundable deposits, you must satisfy yourself, and be able to demonstrate that the money loaned is only being used for the purposes listed above.
Repayment of debt before 1 October 2011
It is a permitted use for refundable deposits to be used to repay debt that is accrued before 1 October 2011, if the debt is accrued for the purposes of providing aged care to care recipients.
Reasonable business losses
In recognition that construction of a new aged care service, or the acquisition of an existing aged care service may involve losses in the initial stages of operation, and that these losses are closely related to the capital investment, a time limited capacity to use refundable deposits to support operational costs is available.
You can use refundable deposits to meet reasonable business losses of a new service for the first 12 months of that service beginning to be operated by the new provider and receiving residential subsidy. If using refundable deposits to meet reasonable business losses, you must ensure that you have sufficient liquidity to repay refundable deposits when they fall due. For further information on these requirements, visit the Liquidity Standard page.
Resources
- Permitted Use: Introduction to permitted uses (video)
- Provider Obligations of permitted uses of refundable accommodation deposits (video)
- Permitted Uses of Refundable Accommodation Deposits fact sheet
- Investment management strategy fact sheet