RAD Refund Process in Aged Care Australia: Government Guarantee and Timeline

Why the RAD Refund Matters

When a parent enters residential aged care in Australia and the family pays a Refundable Accommodation Deposit — often $300,000 to $700,000 or more — one of the first questions is deceptively simple: what happens to that money when they leave?

The answer has changed significantly since the new Aged Care Act took effect on 1 November 2025. The RAD is still government-guaranteed, meaning families will always get the balance back. But for residents who entered care after that date, the balance they get back is no longer the same amount they paid in.

Understanding how the refund process works, what gets deducted, and how long it takes can prevent families from making assumptions that cost them tens of thousands of dollars.

The Government Guarantee — What It Actually Covers

The Australian Government guarantees every Refundable Accommodation Deposit held by an approved aged care provider. If a provider becomes insolvent, enters administration, or otherwise fails to return the deposit, the Commonwealth steps in and pays the refund directly.

This guarantee applies regardless of the provider's financial health, and there's no cap on the amount covered. A $900,000 RAD receives the same guarantee as a $300,000 one. Families don't need to assess a provider's balance sheet the way they might evaluate a bank — the guarantee eliminates counterparty risk entirely.

However, the guarantee covers the refundable balance of the RAD, not necessarily the full amount originally paid. Under the post-November 2025 rules, the refundable balance is reduced over time by retention deductions.

The 2% Annual Retention Rule (Post-1 November 2025 Entries)

For anyone who entered permanent residential care on or after 1 November 2025, providers are legally required to deduct a retention amount from the RAD. The retention is calculated at 2% per annum on the reducing balance, applied as a daily rate:

Daily retention = (Current RAD balance × 0.02) ÷ 365

These deductions are capped at a maximum of five years from the date the deposit was first paid. Because the 2% applies to a declining balance (each deduction reduces the principal, so the next deduction is slightly smaller), the total retained after five years is somewhat less than a flat 10%.

For a $500,000 RAD, the approximate deductions look like this over the first three years:

• Year 1: ~$10,000 retained (~$27/day initially, declining)
• Year 2: ~$9,800 retained
• Year 3: ~$9,600 retained

After five years, the provider will have retained roughly $47,000–$48,000 from a $500,000 deposit. That money is gone — it's non-refundable on exit.

Providers must process these deductions at least quarterly but no more than once per month. They cannot ask families to "top up" the RAD to offset the declining balance, and they cannot increase the Daily Accommodation Payment (DAP) to compensate.

Pre-November 2025 Residents Are Protected

Residents who entered permanent care on or before 31 October 2025 remain under the legacy fee arrangements. Their RADs are 100% refundable — no retention deductions apply unless they voluntarily opt into the new system using Form AC022, or leave care for more than 28 consecutive days and then re-enter.

If a parent has been in care since before the reform date, the full deposit amount is returned when they leave, minus any agreed drawdowns (such as daily fees deducted from the RAD balance).

When the RAD Must Be Refunded

The provider is legally required to refund the RAD balance within 14 days in the circumstances set by the legislation. The three events that can trigger the refund are:

1. The resident leaves the facility permanently — the applicable statutory timing depends on the departure and any required notice or documentation
2. The resident dies — estate documentation may affect when the refund can be processed
3. The resident transfers to another facility — the refund goes to the new provider or back to the family, depending on the arrangement

The provider must calculate the final balance by subtracting any outstanding fees, agreed drawdowns, and (for post-November 2025 entries) accumulated retention deductions. Ask for the final statement and confirm the payment instructions with the provider.

If the provider misses the applicable statutory deadline, ask the provider and Services Australia what interest or escalation rules apply to the outstanding amount.

What Gets Deducted Before Refund

The final refund amount is the original RAD minus:

• 2% annual retention deductions already processed (post-November 2025 entries only)
• Any agreed fee drawdowns — some families authorise daily fees (BDF, Hotelling Contribution, NCCC) to be deducted directly from the RAD balance
• Outstanding fees or charges — any unpaid invoices at the time of departure or death
• Other amounts permitted under the resident agreement and applicable rules — ask the provider to itemise any fee or charge

Families should request a detailed statement showing every deduction from the original deposit. Providers are required to maintain transparent records of all RAD movements.

Practical Steps for Families

Before entry: Understand whether the RAD will be subject to 2% retention. If entering after 1 November 2025, factor the retention cost into the RAD vs DAP decision — a $700,000 RAD will lose roughly $65,000–$67,000 over five years to retention alone.

During the stay: Request quarterly statements showing the current RAD balance, all retention deductions, and any drawdowns. Verify the daily retention calculation matches the formula above.

On departure or death: Note the exact date and ask the provider to confirm the applicable statutory refund deadline, final balance, and any interest that may be payable.

If the provider is in financial trouble: Contact the Department of Health, Disability and Ageing. The government guarantee means the Commonwealth pays the refund directly if the provider can't.

Navigating the Full Accommodation Payment Decision

The RAD refund mechanics are one piece of a larger decision about how to structure accommodation payments. Whether to pay a lump-sum RAD, a daily DAP, or a combination depends on the resident's assets, income, likely length of stay, and the impact on Age Pension entitlements.

Our Paying for Residential Aged Care guide includes a RAD vs DAP Decision Worksheet that models the financial impact of each option, including retention deductions, MPIR calculations, and pension interactions — so families can compare scenarios before committing hundreds of thousands of dollars.

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