Big profits, low tax and poor care
Owners of for-profit aged care companies are doing nicely and can afford to increase the number of nursing staff to deliver the care their residents deserve.
Recent media coverage has exposed widespread sub-standard care in nursing homes along with revelations of elderly Australians getting ripped off by retirement village operators.
However, not much has been said about the high profitability of aged care companies and the dubious ways they minimise tax despite relying on government funding.
Research by the Australian Nursing and Midwifery Federation (ANMF) shows the six biggest for-profit providers Bupa, Opal, Regis, Estia, Japara and Allity – control about 20 per cent of the aged care market.
Their profits, government subsidies, market share, resident fees and political influence are all growing.
They received nearly $2.2 billion in government subsidies, which made up 72 per cent of their revenue, according to the latest figures.
In total they reported an annual profit of $210 million.
As residents’ acuity increases, the level of funding per bed has increased as well.
Government funding of the industry is expected to continue growing at an average 6.7 per cent per year.
Massive profits subsidised by government
ANMF acting federal secretary Annie Butler says some of the for-profit operators are making significant profits from a largely government-funded industry while failing to employ enough staff and provide decent standards
“Our research shows the industry can well afford to raise standards of care including adequate staffing levels and better food,” she says.
For-profit providers are also increasing the revenue they generate from residents’ fees.
Labour costs have gone up but not as fast as the increase in funding received for higher-need patients.
“Providers are exploiting workers with higher workloads, and consequently lower levels of care for patients, so they can maintain their profit margins.”
While relying on public money the for-profit providers are also using schemes to avoid paying a fair share of tax.
“While profits go up, tax revenue goes down and the quality of care is comprised in pursuit of even higher profits.”
Aged care increasingly dominated by big players
Annie says the big for-profit providers are expanding rapidly through both acquisitions and
“These companies are driving consolidation in the industry and have a major influence on how non-profit companies operate,” she says.
“It will become increasingly harder for small for-profit companies to compete with their larger rivals.”
Most of the companies are looking at providing a range of aged care services beyond traditional nursing home beds.
Many are involved in providing home care services and are looking to both home care packages and NDIS funding for additional revenue and opportunities.
Retirement village operators are expanding aged care beds and aged care operators are expanding independent living options.
Tax liability vanishes
Despite operating in an industry that relies heavily on government funding, the for-profit aged care and retirement village companies seem adept at minimising corporate income tax.
One of the main ways they do so is by using trusts and stapled securities or related corporate structures.
Companies are split into a trust or trusts (which own the real estate and/or provide finance and are not subject to corporate income tax), and operating companies.
The operating companies are subject to the full corporate tax rate and the trusts are required to distribute profits.
This structure allows the trust to charge the operating company excessive rents or lending costs.
This generates tax-free profits for the trust and its shareholders while reducing the tax liability in the operating companies.
In January 2017, the tax office (ATO) issued an alert drawing attention to the problematic use of stapled structures to avoid tax.
The federal Treasury has also released a consultation paper on stapled structures, identifying the same issues.
Some of the larger family-owned for-profit aged care providers are owned through family trusts.
These families include some of the wealthiest families in Australia who are profiting heavily from government funding for aged care.