Residential aged care is one of the most heavily regulated and financially complex sectors in Australia. Nursing homes and high-care facilities operate within a funding framework that blends federal government subsidies, resident contributions, accommodation payments, and fee-for-service extras — each with distinct accounting treatment, GST implications, and acquittal obligations. Following the aged care royal commission and the transition to the Australian National Aged Care Classification (AN-ACC) funding model in 2022, the bookkeeping requirements have increased in complexity and significance.
If you are servicing an aged care facility — whether a standalone nursing home, a community care provider, or a large multi-site aged care group — this guide covers the key areas that require specialist treatment.
AN-ACC Funding: Understanding the Subsidy Structure
The AN-ACC model replaced the Aged Care Funding Instrument (ACFI) in October 2022 and now determines the level of federal government care subsidy each resident attracts. Under AN-ACC, each resident is classified into one of 13 AN-ACC classes based on their assessed care needs, and the facility receives a daily funding rate per resident per class from the Australian Government Department of Health and Aged Care.
From a bookkeeping perspective, AN-ACC funding is straightforward in its arrival — it is received via direct deposit from the department, typically monthly in arrears — but the matching of subsidy receipts to residents requires care. The facility's AN-ACC funding schedule should be reconciled to the actual payments received each month. Discrepancies arise from:
- Residents admitted or discharged mid-month (subsidies are pro-rated by day)
- AN-ACC classification reviews that result in reclassification mid-period
- Holdback amounts where the department is querying a classification
Maintain a resident subsidy register tracking each resident's AN-ACC class, daily rate, admission date, discharge date, and monthly subsidy entitlement. Reconcile this register to the bank receipt each month. Unexplained variances should be investigated with the department promptly — underpayments are recoverable but time-sensitive.
The AN-ACC subsidy is GST-free income. Aged care services, including residential care, are GST-free under section 38-25 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) — they are "aged care" supplies as defined. This means the facility does not charge GST on its core care services and cannot claim input tax credits on expenses directly related to those GST-free supplies.
Accommodation Bonds: RAD and DAP Accounting
Accommodation bonds were replaced by the current Refundable Accommodation Deposit (RAD) and Daily Accommodation Payment (DAP) framework under the Aged Care Act 1997 following the Aged Care Financing Authority reforms.
Refundable Accommodation Deposit (RAD): A lump sum paid by the resident (or their family) to the facility at entry. The RAD is fully refundable on departure, less any agreed retention amounts. It is not income — it is a liability on the facility's balance sheet from the moment it is received. Critically, the RAD funds are subject to the Aged Care (Accommodation) Act requirements, including prudential obligations. Large facilities holding significant RAD pools must comply with liquidity requirements and may be subject to Australian Prudential Regulation Authority (APRA) oversight under the Aged Care Act.
Code RADs to a Refundable Accommodation Deposits — Liability account. Do not code them to revenue. The interest earnings on RAD funds (if the facility invests the pool) are assessable income, but the RAD principal itself is not.
Daily Accommodation Payment (DAP): Residents who elect not to pay a RAD (or who cannot afford to) pay a daily fee equivalent to the deemed interest on the RAD amount. The DAP rate is linked to the Maximum Permissible Interest Rate (MPIR) set by the Minister each quarter. DAP is income — it is revenue received for the accommodation component of the resident's stay. It is not subject to GST (it forms part of the aged care supply).
Residents may elect to pay part RAD and part DAP — a common arrangement. Track each resident's payment election in the resident register and ensure the income recognition and liability recording match the election.
ACFI Cost Allocation and the AN-ACC Transition
While AN-ACC replaced ACFI for funding purposes, many older facilities still carry ACFI-era cost allocation frameworks in their management reporting. For facilities that want meaningful cost reporting, an activity-based cost allocation approach is appropriate — allocating direct care costs (nursing, personal care, allied health) to care cost centres, and accommodation costs (maintenance, cleaning, laundry) to accommodation cost centres.
Under AN-ACC, the funding is not linked to individual cost items in the way ACFI was (ACFI had three domains — Activities of Daily Living, Behaviour, and Complex Health Care — each generating a separate subsidy component). AN-ACC is a single classification producing a single daily rate. However, the facility still needs to demonstrate that its care expenditure is appropriate for the care needs of its residents, particularly in light of the new Quality Indicators requirements and the Aged Care Quality and Safety Commission Act 2018.
For bookkeeping purposes, the practical implication is maintaining detailed coding of care costs by type: Registered Nurses, Enrolled Nurses, Personal Care Workers, Allied Health (physiotherapy, occupational therapy, speech therapy), and ancillary care supports. These costs are reported in the annual Aged Care Financial Report (ACFR) submitted to the Department of Health and Aged Care. Incorrect cost coding will produce inaccurate ACFR data, which affects the government's sector-wide policy modelling.
GST-Free Personal Care Versus Taxable Extras
The distinction between GST-free aged care supplies and taxable extras is practically important for facilities that charge residents for additional services beyond the standard care package.
GST-free supplies (section 38-25 GST Act) include:
- Personal care services (bathing, dressing, continence management)
- Nursing care
- Accommodation in the care facility
- Meals provided as part of the aged care package
- Allied health services that form part of the care plan
Taxable supplies (standard rated at 10%) include:
- Hairdressing and beauty services
- Additional social activities charged separately
- Optional excursions
- Private phone and internet connections
- Guest meals (meals for visiting family members)
- Non-essential equipment hire
The demarcation can be contested where an extra service has both therapeutic and comfort dimensions. The ATO's aged care GST guidance (GSTR 2006/9) provides the framework for these determinations, but borderline cases may warrant a private ruling.
For facilities that offer a significant volume of taxable extras, the GST proportion needs to be carefully managed. The facility's input tax credit entitlements must be apportioned between taxable and GST-free supplies using an approved apportionment method — the standard method is the turnover method (proportion of GST-free revenue to total revenue), but facilities with complex supply mixes may benefit from an alternative apportionment approach under section 70-45 of the GST Act.
Practical Chart of Accounts and Reporting
A well-structured aged care chart of accounts should capture:
Income:
- AN-ACC care subsidies (by quarter, GST-free)
- Basic daily fee income (resident co-contribution, GST-free)
- Means-tested care fee income (GST-free)
- RAD interest income (assessable, not GST)
- DAP income (GST-free)
- Taxable extras revenue (GST inclusive)
Liabilities:
- Refundable Accommodation Deposits (by resident)
- RAD retention reserve
Expenditure by cost centre:
- Registered Nurse labour
- Enrolled Nurse and Personal Care Worker labour
- Allied health (contracted and employed)
- Catering and dietary
- Maintenance and accommodation
- Administration
With this structure, the facility can produce meaningful reports for the board, complete the ACFR accurately, and meet the Department's financial prudential requirements. Aged care bookkeeping done well is not just compliance — it directly supports the quality of care the facility can sustain.