1. © Russell Kennedy Pty Ltd 2012 Accommodation Bonds: Use and Governance Requirements Rosemary Southgate Principal 20 June 2012 2220607

2. Use of Accommodation Bonds Use of an accommodation bond by an approved provider is permitted if the bond is: used for capital expenditure invested in a financial product used to make a loan in specified circumstances used to refund accommodation bond balances or entry contribution balances 2

3. Use of Accommodation Bonds (cont) used to repay debt accrued for the purposes of capital expenditure or refunding accommodation bond balances used to repay debts accrued before 1 October 2011, if that debt was accrued for the purpose of providing aged care to aged recipients used as permitted by the User Rights Principles to meet reasonable business losses incurred in the first 12 months of operation 3

4. Permitted Uses for “capital expenditure” Where it is reasonable in the circumstances this includes: acquiring land on which is (or will be) built a premises for providing residential or flexible care acquiring, erecting, extending or significantly altering premises used (or proposed to be used) for residential or flexible care 4

5. Permitted Uses for “capital expenditure” (cont) acquiring or installing furniture, fittings or equipment for premises used (or proposed to be used) for providing residential or flexible care – as part of the construction of new premises or extension/significant alteration/ refurbishment of existing premises The capital expenditure must be directly attributable to any of the above categories 5

6. Permitted Uses for investment in a “financial product” Investment in a financial product: any deposit-taking facility made available by an authorised deposit-taking institution a debenture, stock or bond issued by the Commonwealth, a State or a Territory a security (i.e. shares) 6

7. Permitted Uses for investment in a “financial product” (cont) in relation to a registered scheme, may include life insurance, superannuation or a retirement savings account a financial product specified in the User Rights Principles (namely, an interest in an aged care investment scheme) 7

8. Permitted Loans A loan is permitted if the following conditions are satisfied: the loan is not made to an individual the loan is made on a commercial basis there is a written agreement in relation to the loan the money received under the loan can only be used for permitted capital expenditure or investment in a permitted financial product 8

9. Transitional Arrangements Accommodation bonds charged after 1 October 2011: two year transitional period during this time, bonds must be used for a purpose relating to providing residential care or the new requirements 9

10. New Governance Standard Commenced 1 February 2012 Must have a governance system that: ensures accommodation bond balances are used only for permitted uses ensures accommodation bond balances are refunded to residents as required under the Act 10

11. New Governance Standard (cont) The governance system must provide for: allocating responsibilities to key personnel in relation to the management of bond balances monitoring and controlling any delegation or outsourcing of these responsibilities reporting mechanisms to ensure the provider effectively monitors and controls the use of bond balances 11

12. New Governance Standard (cont) ensuring that key personnel, as well as any person contracted by the provider, is aware of their obligations in relation to bonds under the Act and Principles detecting, recording and responding to any failure to comply with these requirements The governance system must be documented, up-to-date and modified or replaced as required 12

13. Investment Management Strategy Required if the provider invests in other than ADIs Must set out the provider’s investment objectives and assessment of the level of risk to the provider’s ability to refund bond balances Strategy for achieving investment objectives, while ensuring ability to refund bond balances when due 13

14. Investment Management Strategy (cont) Asset classes the provider will invest in and investment limits for each asset class that are consistent with the objectives in the investment strategy Ensure key personnel with the appropriate skills and experience are responsible for implementing the IMS The provider must ensure the investment occurs in accordance with the IMS The strategy must be up-to-date and comply with the Act and Principles and must be modified or replaced as required 14

15. Key Dates DateDescription 1 October 2011New requirements commenced (excluding new governance standard) and subject to transitional provisions 1 February 2012New governance standard commenced 30 April 2012First APCS due under new requirements if your financial year is 1 January to 31 December 30 October 2012First APCS due under new requirements if your financial year is 1 July to 30 June 30 September 2013Transitional provisions in relation to use of bonds end 15

16. Questions? 16

17. DISCLAIMER The information contained in this presentation is intended as general commentary and should not be regarded as legal advice. Should you require specific advice on the topics or areas discussed please contact the presenter directly. 17

18. Presenter Details 18 Rosemary Southgate Principal T: (03) 9609 1637 E: rsouthgate@rk.com.au