RSM Australia

Significant refurbishment guide

Providers offering residential aged care in either new or significantly refurbished residential aged care facilities are eligible for a higher accommodation supplement in respect of concessional and supported resident. In many situations this higher supplement can set the benchmark for resident accommodation charges for self-funded retirees. The financial incentives are attractive in both these situations. Undertaking a significant refurbishment maintains the quality and relative attractiveness of a facility which can be directly linked to occupancy and financial viability and sustainability.

The following is a summary of the benefits and processes involved in qualifying for the higher accommodation supplement together with an outline of the RSM support service for providers who are interested in pursuing this opportunity.

Overview of benefits

New or significantly refurbished residential aged care facilities qualify for a higher accommodation supplement in respect of supported, concessional and assisted residents. The current subsidy rates are:

Concessional or assisted resident ratio

Subsidy

More than 40%

$53.84

Less than 40%

$40.38

Not new or significantly refurbished more than 40%

$35.08

Not new or significantly refurbished less than 40%

$26.31

DSS subsidy rates

The table below demonstrates the marginal income that is attributable to a new or significantly refurbished facility. Assuming industry average occupancy of 93% the annual marginal income per resident from a new or refurbished facility is:

Concessional or assisted resident ratio

Marginal daily income

Estimated annual marginal income

More than 40%

$18.76

$6,368

Less than 40%

$14.07

$4,776

For an existing facility to qualify for this higher accommodation supplement it must spend at least $25,000 on 40% of the rooms (places) in the facility. Should a provider spend the minimum capital requirement the outlay of $25,000 would generate income of either $6,368 or $4,776 which represents a return on the investment of 25% or 19%. In an environment where funds invested in interest bearing deposits are generating returns in the order of 3% it is easy to justify undertaking a significant refurbishment.

As government subsidies are continually being reduced or re-rated accessing this marginal income can contribute significantly to ongoing viability.

The above example is illustrative and not meant to represent the actual return that a provider will derive.

The actual return achieved will be a function of:

  • investment per place based on the total capital cost of the refurbishment

  • the supported resident ratio

  • the impact on accommodation charges (RAD and DAP) that can be levied on self-funded residents

  • the percentage of self-funded residents who chose to pay a RAD rather than a DAP

  • actual occupancy rates

Obtaining higher accommodation supplement

A provider has to have the facility assessed by the Dept. as having been significantly refurbished. This is achieved by submitting an Application for Higher Accommodation Supplement for Significantly Refurbished Facility.

Providers are able to and we recommend you obtain a pre-approval prior to committing to the expenditure and then lodge an application for final approval once the work is complete. This removes the risk that your proposed expenditure does not meet the requirements for approval.

Decision tree that demonstrates what is required to have your capital works approved.

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RSM service

At RSM, we provide the following service to support providers who are considering undertaking a significant refurbishment:

  1. a checklist of qualifying activities
  2. a review and assessment of the proposed scope of work to give preliminary advice on whether the proposed work is able to be specified in a way that meets the criteria
  3. an estimate of the investment and return on investment associated with the works that takes account of the likely impact on future RAD and DAP from self-funded residents
  4. an assessment of the merits of the proposed works from both financial and operational perspectives
  5. a report for consideration and approved by your board
  6. preparation and lodgement of pre-approval and final approval applications and management of interactions with the Department through to formal approval
  7. if required we can assist with funding applications to lenders
  8. advice on the interface with the significant refurbishment provisions for the subsidy and permitted use rules for lump sum accommodation payments

RSM fees

RSM fees for the above service are based on a scale that relates to the number of places in your facility and comprises of a relatively small up-front fee with the balance being contingent on achieving a positive outcome on the pre-approval application.

In situations where finance is required there is an additional fee in respect of completing a submission to your lenders.