Understanding Aged Care Costs in Australia
Navigating the financial aspects of aged care in Australia can be complex. This guide aims to provide clarity on the various costs and fees associated with aged care services, how they’re calculated, and the factors that may influence what you pay.
Please note: This information is provided for general reference only. For current and specific information about aged care costs and fees, please refer to the official My Aged Care website or contact them directly on 1800 200 422.
Home Care Costs
For those receiving care in their own home, the cost structure differs based on the program you access.
The Commonwealth Home Support Programme (CHSP) provides entry-level support services that are heavily subsidized by the government. Recipients typically make a small contribution toward these services, with the specific amount varying based on the type and frequency of services received.
Home Care Packages offer more comprehensive support across four levels of care intensity. The cost structure for these packages includes a basic daily fee (calculated as a percentage of the Age Pension), an income-tested care fee (determined by your income assessment), and potential additional service fees for optional services beyond the standard package offerings.
Residential Aged Care Costs
Moving into an aged care home involves a more complex fee structure with several components to understand.
The Basic Daily Fee is paid by all residents regardless of means testing results. This fee is set as a percentage of the basic Age Pension and covers everyday living costs such as meals, cleaning, laundry, heating, and other utilities.
Those with higher income or assets may also pay a Means-Tested Care Fee, which is an additional contribution towards care costs based on the comprehensive income and assets assessment. This fee has both annual and lifetime caps to ensure affordability.
Accommodation Payment covers your room and access to common areas within the facility. This can be paid as a Refundable Accommodation Deposit (RAD), a Daily Accommodation Payment (DAP), or a combination of both approaches.
Many facilities also offer Additional Service Fees or Extra Service Fees for enhanced amenities or services beyond the standard offering. These optional fees vary significantly between aged care homes and should be clearly outlined in any accommodation agreement.
Understanding the Means Test for Aged Care
The means test assesses both income and assets to determine your contribution to care costs.
What’s Included in the Income and Assets Assessment
The means test for aged care considers both your income and assets to determine your contribution to care costs.
Your assessable income typically includes pension and other government benefits, net income from rental properties, business income, deemed income from financial investments, superannuation income streams, and any overseas pensions you may receive.
When it comes to assets, the assessment may include your family home (in some circumstances), real estate and land, motor vehicles, boats, and caravans, financial investments, superannuation balances, household contents and personal effects, and any Refundable Accommodation Deposits already paid to an aged care home.
The results of this comprehensive assessment will determine whether you pay a means-tested care fee, the amount of government subsidy towards your accommodation costs, and the maximum accommodation payment you might need to pay.
To ensure aged care remains affordable, the government has established caps on means-tested care fees, including an annual cap that resets each year and a lifetime cap that represents the maximum amount payable over your lifetime. These caps are indexed regularly, so it’s important to check the current figures with My Aged Care.
RAD vs DAP: Understanding Your Accommodation Payment Options
One of the most significant decisions when entering residential aged care is how to pay the accommodation costs.
What is a RAD (Refundable Accommodation Deposit)?
A RAD is:
- A lump-sum payment
- Fully refundable when you leave the aged care home (unless you choose to use it for other fees)
- Government guaranteed
- Subject to interest charges if you choose a partial RAD
What is a DAP (Daily Accommodation Payment)?
A DAP is:
- A daily payment similar to “rent”
- Calculated based on the unpaid RAD amount and the maximum permissible interest rate
- Not refundable
- Paid for the duration of your stay
Comparing RAD and DAP Options
| Aspect | RAD (Lump Sum) | DAP (Daily Payment) | Combination |
| Refundable | Yes, when you leave care | No | Partial (RAD portion only) |
| Impact on Age Pension | May affect eligibility as it’s counted as an asset | Less impact on pension as it’s not an asset | Depends on the proportion |
| Estate planning | Refunded to estate | Nothing to refund | Partial refund to estate |
| Investment considerations | Opportunity cost of funds used | Preserves capital for investment | Balance between both |
| Cash flow | Large upfront payment | Ongoing payments | More flexible |
Factors to Consider When Choosing Between RAD and DAP
The decision between paying a Refundable Accommodation Deposit (RAD) or a Daily Accommodation Payment (DAP) is one of the most significant financial choices when entering residential aged care. This decision should be carefully considered in light of your personal circumstances.
Your financial situation and available funds will naturally influence this choice. Some people have access to liquid assets that make a lump sum RAD payment feasible, while others may prefer to preserve their capital and manage ongoing DAP payments instead.
Pension eligibility is another important consideration, as a RAD payment is counted as an asset while a DAP is not. This difference can have implications for your pension status and ongoing entitlements.
Estate planning goals should also factor into your decision. A RAD is fully refundable to your estate when you leave care, whereas DAP payments are not recoverable. This distinction may be significant depending on your estate planning priorities.
Cash flow preferences and investment opportunities represent additional considerations. Some people prefer to retain their capital for investment purposes while paying the DAP, while others prefer the certainty of having paid the accommodation cost upfront with a RAD.
It’s important to consider how each option aligns with your personal circumstances and long-term financial planning. For personalized advice tailored to your specific situation, consider consulting with a financial advisor who specializes in aged care financing.
Home Exemption in the Aged Care Means Test
The treatment of your family home in the aged care means test can have significant implications for your fees and costs. Under certain circumstances, your home may be completely exempt from the means test calculations.
Your home is generally exempt if a protected person is living there. This includes your spouse or de facto partner, a dependent child, or a carer who is eligible for government income support and has been living in the home for at least two years. The exemption also applies if a close relative who is eligible for government income support has been living in the home for at least five years.
When your home doesn’t qualify for a complete exemption, its value is still partially protected through what’s known as the home exemption cap. This means that only a portion of your home’s value, up to a government-determined cap amount, is counted in the assets test for aged care purposes.
If you decide to rent out your former home after moving into aged care, different considerations apply. The rental income will be counted in your means test, potentially affecting your fees. However, the value of the home itself remains subject to the same exemption rules described above, regardless of whether it’s being rented.
Extra Services and Additional Services
Many aged care homes offer enhanced services beyond the standard care offering. Some facilities have formal “Extra Service Status” approved by the government, which allows them to provide a higher standard of accommodation and services. These might include more spacious or better-appointed rooms, enhanced meal options with greater choice and quality, additional lifestyle services and activities, expanded entertainment options, and personal services like hairdressing or massage.
Even aged care homes without formal Extra Service Status frequently offer additional services on an opt-in basis. Residents might have access to premium menu choices, wine with meals, special outings beyond the standard activities program, additional therapy services, or enhanced technology and communication services.
It’s important to note that these upgraded services come with additional fees that vary considerably between providers. These enhancements are not covered by government subsidies, so the full cost is borne by the resident. When considering aged care homes, ask for detailed information about any additional services offered and their associated costs to ensure they align with your preferences and budget.
Financial Hardship Assistance
For those who may struggle with aged care costs, financial hardship assistance is available.
Eligibility for Hardship Assistance
Hardship assistance may be available if you:
- Have limited financial means
- Have expenses beyond your control
- Have no support from family
- Have made reasonable attempts to meet the costs yourself
Types of Hardship Assistance
- Reduction or elimination of the means-tested care fee
- Assistance with accommodation costs
- Assistance with basic daily fee in exceptional circumstances
Applications for financial hardship assistance are assessed by Services Australia.
Understanding Fee Estimations and Calculations
Several resources are available to help you estimate potential aged care fees before making decisions. The My Aged Care Fee Estimator is the official government calculator that provides baseline estimates based on current rates and thresholds. Many financial institutions and aged care financial services also offer calculators that may provide more detailed projections based on various scenarios.
These calculators can be valuable tools to help you understand the potential range of costs and compare different scenarios. They allow you to explore how different financial arrangements might affect your overall aged care costs. However, it’s important to understand their limitations.
Fee calculators provide estimates only, not exact figures. Your actual fees may vary based on your specific circumstances and any changes to government policies or fee structures. These tools cannot consider all personal circumstances or replace a formal income and assets assessment by Services Australia or the Department of Veterans’ Affairs.
For an accurate determination of fees, you’ll need to complete the Income and Assets Assessment form, submit it to the appropriate government department, and await a formal fee notification letter. This official assessment provides the most reliable information about your potential aged care costs.
Planning for Changing Aged Care Costs
Aged care costs can change over time due to various factors.
Regular Fee Adjustments
- Basic daily fee: Adjusted with Age Pension increases
- Means-tested care fee: Reassessed quarterly
- Accommodation payment interest rates: Reviewed regularly
- Additional service fees: May change with provider policies
Major Life Events That May Affect Fees
- Selling your family home
- Changes in your income or assets
- Changes in your partner’s circumstances
- Receiving an inheritance
- Gifting assets
Regular Reviews
Your means-tested care fee is generally reviewed quarterly. Significant changes to your financial situation should be reported to Services Australia or the Department of Veterans’ Affairs as they may affect your fees.
Common Questions About Aged Care Costs
Many people wonder if selling their home is necessary to pay for aged care. The simple answer is no—selling your home is not mandatory. There are several alternatives to consider. You might keep your home and pay a Daily Accommodation Payment instead of a Refundable Accommodation Deposit. Some people choose to rent out their home to generate income that can help cover aged care costs. Others may use other assets or income sources to pay for care, while some explore financial products like reverse mortgages or equity release options.
Your pension status may change when you enter aged care, depending on several factors. Changes to your asset position might affect your pension eligibility or payment rate. If you lease your former home, the rental income will be considered in pension calculations. Additionally, the type of accommodation payment you choose can have different impacts on your pension assessment.
Regarding fee negotiation, it’s important to understand which components have flexibility. Accommodation payment amounts may be negotiable with some providers, particularly if rooms have been vacant for some time. Additional service fees often have optional components that you can select based on your preferences and budget. However, the basic daily fee and means-tested care fee are set by the government according to specific formulas and are non-negotiable.
Regional Variations in Aged Care Costs
Aged care costs can vary significantly across different regions in Australia.
Metropolitan vs Regional Areas
- Metropolitan areas often have higher accommodation costs
- Regional areas may have more limited choice but lower costs
- Remote areas may have additional funding support
State by State Variations
While many aged care fees are standardized nationally, accommodation costs vary between states, with:
- Generally higher costs in NSW and Victoria
- Lower average costs in Tasmania, South Australia, and regional areas
Making Informed Decisions About Aged Care Costs
Navigating aged care costs requires careful planning and consideration. Begin by contacting My Aged Care for initial guidance about the process and available services. Completing an income and assets assessment early is crucial, as this will determine your potential fees and costs.
While exploring your options, use fee estimators to develop a general understanding of the potential costs involved, though remember these are estimates only. Take time to visit and compare multiple aged care homes, as accommodation costs and service offerings can vary significantly between providers.
During your visits, ask detailed questions about all fees and charges, including both mandatory and optional components. Request written information about costs and take it with you to review carefully. When you’ve selected a facility, read the accommodation agreement thoroughly before signing, paying particular attention to fee structures and conditions.
Throughout this process, gathering comprehensive documentation will help ensure accurate assessments and informed decisions. Have your income details ready, including pension statements and investment income information. Collect asset information such as property valuations, bank statements, and investment portfolios. Document your expenses and debts, and maintain records of any assets you may have gifted in the past five years, as these may still be considered in your assessment.
Many people find that seeking professional financial advice specific to aged care can be valuable, especially given the complexity of the decisions involved and their long-term financial implications.
Important Resources for Understanding Aged Care Costs
For accurate and up-to-date information about aged care costs, fees, and financial assistance, we strongly recommend consulting these official resources:
- My Aged Care: 1800 200 422 or www.myagedcare.gov.au – The official government gateway to aged care services
- Services Australia (Financial Information Service): 132 300 or www.servicesaustralia.gov.au – Free financial information service
- Department of Veterans’ Affairs: 1800 555 254 or www.dva.gov.au – For veteran-specific information
- Department of Health and Aged Care: www.health.gov.au/topics/aged-care – Policy information and current fee schedules
Disclaimer
The information provided on this page is general in nature and does not constitute legal, financial, or professional advice. Legasy is not a government authority or financial advisor, and this content should be used for informational purposes only.
All fee structures, means test thresholds, and accommodation payment calculations mentioned on this page are subject to change by government authorities. We have deliberately avoided quoting specific dollar figures as these are regularly updated by the relevant government departments.
For the most current and accurate information regarding aged care costs and fees, please consult My Aged Care, Services Australia, or the Department of Health and Aged Care directly. We strongly recommend consulting with a financial advisor specializing in aged care for advice tailored to your specific circumstances.
Legasy takes reasonable care to ensure the accuracy of information provided, however, we cannot guarantee its currency or completeness. Users should independently verify all information before making decisions based on it.
This page was last updated: May 2025