Daily Accommodation Payments: DAP's

Daily Accommodation Payment (DAP)

The DAP is simply the RAD equivalent paid on a daily basis, converted on the basis of a "maximum permissible interest rate" (MPIR) set by the Government.

DAP = Refundable Accommodation Deposit (RAD) × MPIR/365

As an example, calculate the DAP equivalent of a RAD of $350,000, based on a maximum permissible interest rate (MPIR) of 4.1% - the rate effective July 1, 2020:

DAP = $350,000 x 4.1%/365

DAP = $39.32

So, as an alternative to making an upfront (RAD) payment of $350,000 you may opt to make a daily (DAP) payment of $39.32.

Note that while the MPIR will change regularly, the DAP is not recalculated - the applicable MPIR is that one which was current on the day the resident agreed an accommodation payment with the aged care home - unless the resident later changes rooms within the aged care home. Also notice that the MPIR is intentionally much higher than the (risk-free) interest rate you would receive on the open market - making it relatively attractive for individuals to pay for their accommodation in the form of a lump sum, rather than a daily payment, if they have access to the required capital.

Combining a RAD and DAP

As mentioned above, you may at your discretion choose to pay for your accommodation by using a combination of RAD and DAP payments. For example, using the above example, if you choose to pay for your accommodation by contributing 50% of the advertised RAD ( $175,000) then you would have a commitment to paying 50% of the advertised maximum DAP. The calculations would be as follows:

50% RAD = $175,000

DAP = $175,000 x 4.1%/365 = $19.66

Example

The following example might be useful in understanding the mechanics in more detail.

Angelo has agreed with an aged care provider to move into a room which has an advertised accommodation payment of $400,000 lump sum (RAD) or $54.57 per day daily payment (DAP) based on a MPIR of 4.1%.

Angelo can choose to either:

  • pay the entire $400,000 as a lump sum "RAD" (which the provider would hold while Angelo is in residential care, refunding the balance when he leaves); or
  • pay the current equivalent daily payment of $44.93 per day "DAP" (instead of the lump sum, which is not refunded); or
  • pay a combination of both a refundable deposit and daily payments, RAP + DAP (the balance of the portion paid as a refundable deposit would be refunded when Angelo leaves).
If Angelo chooses the "combination" strategy (RAD + DAP), he may choose to pay by a combination of a $200,000 lump sum and the remaining amount as daily payments (which would equate to $22.47 per day using the legislated formula). The daily payments are paid instead of the remaining price (i.e. $200,000) and are not refundable.

When Angelo leaves the aged care home, the $200,000 refundable deposit will be refunded (as long as he did not agree for any amounts to be deducted from his refundable deposit, in which case it would be the balance that would be refunded).

You may also choose to deduct your DAP from your RAD by arrangement with your aged care home. Because under this approach your RAD declines over time, and the home loses some interest income as a result, you may find that your DAP is higher under this arrangement than if you pay your DAP on a stand-alone basis. Note also that you may need to top up your RAD or pay an increased DAP over time - discuss these arrangements in detail with your prospective aged home provider.

 

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