Understanding Aged Care Costs in Australia

Navigating aged care in Australia can be daunting—emotionally and financially. Whether you're supporting an ageing parent or planning ahead for your own future, understanding how the aged care system works is essential to making informed and confident decisions.

From 1 November 2025, significant reforms will reshape how some aged care fees are calculated. While the core fee structure will remain, the changes are intended to improve transparency, resident choice, and financial sustainability. Here’s what’s changing—and how to plan ahead within a compliant framework.

The Four Core Aged Care Fees Explained

Before we explore what’s changing, it’s helpful to understand the four main types of residential aged care fees:

1. Accommodation Payment (RAD/DAP)
You may pay a lump sum called a Refundable Accommodation Deposit (RAD) or a Daily Accommodation Payment (DAP), which is interest on any unpaid RAD. This covers the room and is set by the aged care provider based on location and quality.

2. Basic Daily Fee
This fee is paid by all residents and is set at 85% of the single basic age pension. It covers essential living costs such as meals, cleaning, and laundry.

3. Means-Tested Care Fee (becoming the ‘Non-Clinical Care Contribution’)
This fee varies based on an individual’s income and assets and ensures that those with greater financial means contribute more to their care costs.

4. Additional Services Fee
This covers optional upgrades like premium meals or entertainment. Historically, some providers have bundled these into admission packages, but upcoming reforms will change this.

What’s Changing from 1 November 2025?

RAD Retention
Providers will be permitted to retain up to 2% per year of the RAD for up to five years. This is a shift from the previous model where the full RAD was refundable.

Additional Services Reform
These services will now require clear, upfront consent from residents—moving to an explicit opt-in model. Bundled or compulsory charges without disclosure will be prohibited.

Why it matters:
These changes may slightly increase costs in some cases, but they promote transparency and resident control over optional services.

Should You Sell the Family Home?

This is one of the most common financial decisions faced by families when aged care is needed.

Scenario (Illustrative Only):
Carol, a widow, owns a $1.6 million home and has $20,000 in savings. Her chosen aged care provider requires a $550,000 RAD and charges an additional $10/day for services. If she chooses not to pay the RAD upfront, she may be charged a DAP instead—currently calculated at 7.78% interest.

Considerations:

• Renting the home may generate income but could affect Centrelink entitlements and increase aged care costs due to higher assessable income.

• Selling the home adds to assessable assets, which may increase means-tested fees.

• Opting to pay the DAP offers flexibility but can increase long-term costs due to interest accumulation.

These decisions are highly individual and should be evaluated holistically. There is typically no obligation to pay the RAD immediately, and facilities often offer flexibility while families consider options.

Lending Money to a Parent? Understand the Risks

It’s common for family members to assist elderly relatives, but lending funds for a RAD or other aged care expenses should be approached carefully.

Risks to consider:

• Conflict of interest: If you are acting under a power of attorney and also providing a loan, this may raise legal or ethical issues.

• Centrelink assessment: Funds loaned by adult children and used to pay a parent’s RAD are still considered the parent’s asset by Centrelink.

• Access to funds: RADs are only refunded when a resident leaves care or passes away, meaning the funds may be tied up for years.

Recommendation:
Seek professional legal and financial advice before transferring significant sums. Ensure that formal documentation is in place to protect all parties.

Paperwork & Centrelink: Avoid Costly Delays

Failure to update Centrelink or Services Australia records promptly can result in excess fees—sometimes exceeding $400 per day—while assessments are pending.

Checklist:

• Notify Centrelink immediately when entering aged care.

• Submit required forms about income, assets, and property ownership.

• Understand pension changes: Couples separated due to aged care placement are typically classified as “illness-separated,” which can affect payment rates.

Plan Early to Prevent Family Disputes

Aged care decisions often intersect with estate planning and family financial dynamics.

To reduce potential conflict:

• Document any financial arrangements (especially if family members contribute).

• Communicate openly with all siblings or involved parties.

• Review or update estate planning documents, including wills, enduring powers of attorney, and advanced care directives.

Prepare Without Panic

Accessing aged care doesn’t mean financial hardship is inevitable. Government safety nets are in place, but early preparation can lead to better outcomes—both financially and emotionally.

It may be time to begin planning if:

• You or a loved one is likely to need aged care within 1–3 years.

• The family home is worth over $200,000 or you hold significant financial assets.

• You want to retain more control and avoid rushed decisions under pressure.

Disclaimer:
This article contains general information only and does not consider your individual objectives, financial situation, or needs. It is not intended to constitute financial, legal, or tax advice. You should consult a qualified professional before making any financial decisions. Aged care fees and legislation may change over time, particularly after the 1 November 2025 reforms. Always refer to My Aged Care or official government sources for the most current information.