Repayment of Aged Care Capital Funding - The Guidelines
The Commonwealth has provided capital funding to assist organisations in the capital development of residential aged care facilities through the Aged or Disabled Persons Care Act 1954, the National Health Act 1953 and now, the Aged Care Act 1997.
Grants have been made in accord with an agreement between the Department and the recipient that requires the recipient to apply the grant to particular purposes and to meet a range of other conditions. These agreements usually state the conditions under which the Commonwealth can seek the repayment of grant, including allowing for the Department to set conditions in relation to demolition, disposal or change in effective control of the property for which the grant was made.
It is important for residential care providers to have clear information on the repayment the Commonwealth would seek should the grant recipient decide to divest itself of the facility for which the grant was provided, whether by way of sale or uncompensated transfer.
Rationale and principles for seeking repayment of capital grant funding
Commonwealth (taxpayers') money was allocated to residential aged care service providers in order to meet the objective of encouraging the construction/renovation of buildings appropriate to the provision of aged care. The funding was not provided as a business development grant or as a general purpose grant to charitable/religious organisations. The Commonwealth continues to have an interest in ensuring that the funds continue to be applied to the original purpose, at the relevant service, for a considerable time beyond the original payment of the grant. If the purpose of the grant is no longer being effectively met, then the Commonwealth's funds need to be repaid to general revenues for application to the Government's current policy priorities.
The principle initially applied is:
That Commonwealth money paid as a capital grant should be repaid when the grantee divests itself of its interest in providing residential aged care in the facility for which the grant was made.
However, there may be circumstances in which such a requirement may be inconsistent with other objectives (eg. to meet acceptable accommodation standards when rebuilding is the only practicable alternative). There may also be circumstances where to seek repayment would be unduly harsh (eg. where a provider is transferring its residential aged care assets to another provider with no gain to itself). One option that is appropriate in certain circumstances involving a change of ownership is to novate (transfer) the grant agreement to a new provider by a deed of novation.
Each case is assessed on its merits but the presumption is that the Commonwealth should seek repayment of its interest unless a strong argument to the contrary can be made in writing. In light of the fact that a decision not to seek repayment is just as much a decision about the allocation of Commonwealth resources as is a decision to seek repayment. The Commonwealth may seek repayment of all or part of the grant, having regard to the particular circumstances of the case.
In considering the merits of any case, the following questions should be addressed:
Is the facility being sold on the commercial market?
If the answer is yes the Commonwealth should seek repayment of the grant.
Is the facility being transferred in a way that results in financial/asset gain to the grant recipient?
If the answer is yes the Commonwealth should seek repayment of the grant.
Is there any convincing argument that to seek to repayment of the grant would frustrate the achievement of an identified Commonwealth aged care policy objective (for example, an argument that repayment of the grant would jeopardise the ongoing viability of the grantee's aged care services)?
If the answer is yes the policy objective should be identified and how seeking repayment of the grant would frustrate the achievement of the identified aged care policy objective should be addressed.
If an existing provider proposes to rebuild a service on the same site and to continue to operate that service, has the provider demonstrated a need to rebuild because it would be uneconomic or not practical to upgrade the existing facility, especially where such requirements could not have been foreseen at the time of the most recent Commonwealth capital grant?
If the answer is yes, the Commonwealth may choose not to seek repayment of previous grants, taking into account all other circumstances of the case.
Is the financial situation of the recipient such that there is little likelihood that an attempt to seek repayment of funds would be successful?
If the answer is yes the argument should be fully documented with supporting evidence. The legal position of the recipient may also need to be considered.
These principles apply to grant agreements made under the Aged or Disabled Persons Care Act 1954, the National Health Act 1953, the Aged Care Act 1997 and the Rural and Regional Building Fund. The same principles are applied to grants funded outside the Aged or Disabled Persons Care Act 1954 and to capital grants made the Aged or Disabled Persons Care Act 1954 for the construction of self-contained units and day therapy centres (mostly in the 1980s).
Funds to be repaid
a) Funds to be repaid can be divided into two components. The first component derives from the time period for which the Commonwealth maintains an interest in ensuring that residential aged care is provided at the service. The second component relates to the size of the original grant.
b) Twenty years is the maximum period over which the Commonwealth retains its interest. This maximum period applies to major contributions to new or substantially upgraded buildings, with a shorter period for grants for smaller projects.
c) In all grant agreements, the Secretary of the Department determines whether all or part of the grant should be repaid. This provision allows flexibility to set an amount lower than the full amount of the grant, in accordance with the principles set out above.
d) The basis for recovery will be the actual amount of grant, rather than a proportion of the current value of the facility, unless the Secretary determines otherwise, taking into account any case made by the grantee.
e) For capital grants of up to $100,000, unless otherwise stated in the grant agreement:
- The period in which the Commonwealth will retain an interest will be 2 years; and
- The Commonwealth will seek repayment for the full amount of the grant.
f) For capital grants of $100,001 to $500,000, unless otherwise stated in the grant agreement:
- The period in which the Commonwealth will retain an interest will be 2 years plus an additional 1 year for every $50,000 of grant or part thereof greater than $100,000; and
- The Commonwealth will seek repayment for the full amount of the grant if disposal takes place at any time prior to the expiration of half the period of the Commonwealth interest. After this time, the amount to be repaid will reduce in equal proportions for each completed year to be $0 at the end of the period of Commonwealth interest. For example, for a grant of $500,000 with an expected life of 10 years, the full amount would be repayable for the first 5 years, after which the amount to be recovered would reduce by 20% for each completed year for each year beyond 5 years.
g) For capital grants of $500,001 or more, unless otherwise stated in the grant agreement:
- The period in which the Commonwealth will retain an interest will be 10 years plus an additional 1 year for every $100,000 of grant or part thereof greater than $500,000; and
- The Commonwealth will seek repayment for the full amount of grant if disposal takes places at any time prior to the expiration of half the period of the Commonwealth interest.
After this time, the amount repayable will reduce in equal proportions for each completed year to be $0 at the end of the period of Commonwealth interest. For example, for a grant of $2,000,000 with an expected life of 20 years, the full amount would be repayable for the first 10 years, after which the amount to be repaid would reduce by 10% for each completed year for each year beyond 10 years.
The starting date for the determination of the period over which the Commonwealth will retain an interest will be the completion date of the project.
Extra Service Status
Where a service receives Extra Service Status, capital grants are required to be repaid in accordance with Section 43-6 of the Aged Care Act 1997 and Section 15 of the Subsidy Principles 2014.
Commonwealth interest in capital grants for residential aged care services
The period of Commonwealth interest in a capital grant extends for the following number of years from the Project Completion Date*.
|Amount of grant||Period of interest|
|Up to $100,000||2 years|
|$100,001 - $150,000||3 years|
|$150,001 - $200,000||4 years|
|$200,001 - $250,000||5 years|
|$250,001 - $300,000||6 years|
|$300,001 - $350,000||7 years|
|$350,001 - $400,000||8 years|
|$400,001 - $450,000||9 years|
|$450,001 - $500,000||10 years|
|$500,001 - $600,000||11 years|
|$600,001 - $700,000||12 years|
|$700,001 - $800,000||13 years|
|$800,001 - $900,000||14 years|
|$900,001 - $1,000,000||15 years|
|$1,000,001 - $1,100,000||16 years|
|$1,100,001 - $1,200,000||17 years|
|$1,200,001 - $1,300,000||18 years|
|$1,300,001 - $1,400,000||19 years|
|$1,400,001 - $1,500,000||20 years|
|$1,500,001 and over||20 years|
* Project Completion Date refers to the date that a tax invoice for the final payment instalment for the capital grant, accompanied by evidence of project completion and a certificate of compliance, is received by the Department and is considered satisfactory. If all the material is in order, the Department’s date stamp on receipt of this information will be taken to be the actual completion date of the Project.