How to Plan for Aged Care Costs in Australia: A Financial Guide

Australia's aged care system provides two primary pathways: home care (support to remain at home) and residential aged care (full-time facility care). Both are means-tested and have been substantially reformed under the Support at Home program from 1 July 2025.

• Home care - Support at Home (from July 2025): The new Support at Home program replaces the previous Home Care Package (HCP) system. It provides a range of services (personal care, domestic assistance, nursing, allied health, assistive technology) delivered to people in their homes. Funding is needs-assessed; the consumer contributes a portion based on means testing.
• Residential aged care: For people who can no longer be safely supported at home. Residents live in an approved care facility and receive 24-hour care. Costs include accommodation (RAD or DAP), means-tested care fees, and the basic daily fee. Residential aged care is regulated by the Aged Care Quality and Safety Commission.
• The ACAT/ACAS assessment: Before accessing funded aged care (home or residential), a person must be assessed by an Aged Care Assessment Team (ACAT in most states, ACAS in VIC). The assessment determines the level of care needs and eligibility for funded services. You can self-refer or be referred by a GP or hospital.
• The Aged Care Quality and Safety Commission: Regulates and accredits aged care providers. Every approved provider must meet Quality Standards. If you're concerned about care quality, the Commission investigates complaints and can take action against non-compliant providers.
• Key reform - the Aged Care Act 2024: New legislation fundamentally reforming aged care commenced 1 July 2025. The Support at Home program replaced the HCP system. Means testing, fee structures, and rights frameworks changed. If existing guidance predates July 2025, verify it against current legislation.

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Accommodation in residential aged care is one of the largest costs - and one of the most misunderstood. The Refundable Accommodation Deposit (RAD) system allows flexibility in how accommodation is paid.

• The Refundable Accommodation Deposit (RAD): A lump sum accommodation payment to the aged care facility. The RAD is fully refundable when the resident leaves or dies - it is returned to the resident or their estate. RADs in metropolitan areas typically range from $350,000 to $800,000+, with premium facilities exceeding $1,000,000.
• The Daily Accommodation Payment (DAP): Instead of paying a lump sum RAD, residents can pay a daily rental equivalent. The DAP is calculated as: RAD × MPIR (Maximum Permissible Interest Rate - currently around 8.38% per annum) ÷ 365. On a $500,000 RAD, the DAP is approximately $115/day or $42,000/year. Unlike the RAD, DAP is not refunded.
• Combination approach: Residents can pay part of the accommodation cost as a lump sum (partial RAD) and the remainder as a daily payment (partial DAP). This preserves some liquidity while reducing ongoing daily costs. Example: pay $250,000 RAD and the DAP on the remaining $250,000 (~$57/day).
• Supported residents: People with low assets and income may be classified as 'supported residents' and the government contributes to accommodation costs. The means assessment determines eligibility - the family home, super, and other assets are assessed.
• The RAD as estate planning: Because the RAD is refunded, it is sometimes viewed as a holding deposit rather than a true cost. However, the opportunity cost (foregone investment returns on the RAD amount) is real - at 5% return, a $500,000 RAD costs $25,000/year in foregone income. This must be weighed against the DAP alternative.

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Beyond accommodation, residential aged care residents pay a means-tested care fee based on a Centrelink/DVA income and assets assessment. Understanding the assessment helps with legitimate pre-entry planning.

• The basic daily fee: All residents pay the basic daily fee - currently 85% of the single Age Pension rate (~$60/day in 2024-25). This covers meals, cleaning, laundry, and standard services. It is not means-tested.
• The means-tested care fee: An additional fee based on your income and assets assessment. The maximum annual means-tested fee is currently capped at approximately $31,706/year (indexed). There is also a lifetime cap (~$76,097, indexed). Once the cap is reached, no further means-tested fees apply.
• What's included in the assessment: Financial assets (bank accounts, shares, super, investment properties, managed funds), deemed income on financial assets (at deeming rates), other income (Age Pension, rental income, interest). The family home has a partial and time-limited exemption - included after 2 years at a capped value ($201,231 currently) unless a protected person (spouse, dependent child, eligible carer) lives there.
• Super for those under pension age: If the resident's partner is under age pension age, their super is not included in the assets assessment until they reach pension age. This creates a structuring opportunity for couples with age differences.
• Planning before entry: Legitimate strategies to manage means-tested fees include: prepaying funeral expenses (prepaid funeral bonds up to $15,270 per person are exempt), gifting within Centrelink limits ($10,000/year, $30,000 over 5 years - amounts above this count for 5 years under deprivation rules), and structuring the RAD payment to reduce assessable assets. Seek advice from an aged care specialist financial adviser before entry.

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The family home is often a family's largest asset and the subject of the most emotional and financially significant decisions in aged care. Understanding the rules prevents costly mistakes.

• The 2-year home exemption: When a person enters residential aged care, the family home is exempt from the assets test for 2 years (for the purposes of means-tested care fees and Age Pension). After 2 years, the home is included as an asset (at a capped value for means-tested fees) unless a protected person remains living in it.
• Protected persons: A spouse or de facto partner, a dependent child, an eligible carer (who has lived in the home for 2+ years and would otherwise need to move), or an eligible close relative (who has lived in the home for 5+ years and would otherwise need to move) can maintain the home exemption indefinitely by continuing to reside in the property.
• Sell or retain - the analysis: If the home will be sold, the proceeds become assessable financial assets - increasing the means-tested fee. If retained (rented or vacant), the home is assessed at a capped value for means-tested fees (better than full value), and the rental income is assessable but the asset is protected from full assessment. Retaining until the 2-year exemption expires and then selling may be optimal - but depends on individual circumstances.
• Capital gains tax on the family home: The main residence CGT exemption continues during the period the home is owned but not occupied, subject to the 6-year absence rule. If the home is sold while in care, the timing relative to the 6-year rule affects CGT. For homes held long-term with substantial unrealised gains, CGT planning is essential.
• Granny flat interests: Some families consider transferring the family home to children in exchange for a right to care (granny flat interest). Centrelink has specific rules on granny flat interests that determine whether the value is assessed as a deprived asset. Improperly structured granny flat arrangements can result in deprivation assessments that increase fees significantly.

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Aged care planning done in crisis - when a fall, stroke, or dementia diagnosis forces an immediate decision - is always worse than planning done in advance. The best time to start is in your 60s or early 70s.

• Who to involve: An aged care specialist financial adviser (holds an aged care specific credential - look for the Aged Care Specialist Adviser designation or CAFCA membership), an estate planning solicitor (for Powers of Attorney, advance care directives, and Wills), and your GP (to understand likely care needs trajectory).
• Documents to have in place: Enduring Power of Attorney (financial) and Appointment of Enduring Guardian (personal/medical) are essential before capacity is lost. An advance care directive documents your medical treatment preferences. These documents can only be created while you have legal capacity - do not wait.
• The family conversation: Aged care planning involves significant family coordination - who will coordinate care, who has EPoA, what are the person's preferences for home vs residential care, what role will family play in day-to-day support. Having this conversation while the person is well is profoundly easier than during a crisis.
• My Aged Care: The government portal (myagedcare.gov.au) is the entry point to all funded aged care services. Families should familiarise themselves with the portal and the eligibility process well before it's needed. Waiting lists for home care packages can be significant - being on the list early matters.
• Financial modelling: An aged care financial adviser can model different scenarios - home care vs residential care, RAD vs DAP, sell vs retain the family home - and produce a cash flow projection for the care years. This modelling typically costs $2,000–$4,000 and provides clarity that is worth many times the cost when the decision involves $500,000+ assets.

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