Investing in Aged Care Decisions

Accommodation Costs: RAD, DAP, or a Combination

If your means assessment shows you can afford to pay for accommodation, you will need to agree on a room price with the aged care provider. The national average Refundable Accommodation Deposit (RAD) was approximately $573,000 as of mid-2025, though this varies significantly by location and facility. You can pay this as a lump sum (RAD), a daily rental equivalent (Daily Accommodation Payment or DAP), or a combination of both.

The DAP is calculated using the Maximum Permissible Interest Rate (MPIR), currently 7.96% per annum (as at 1 April 2026). For example, a room with a RAD of $500,000 paid entirely as a DAP would cost approximately $109.04 per day ($39,800 per year). For residents entering care from 1 November 2025, providers also apply a 2% per annum retention fee on any RAD paid, capped at 5 years (maximum 10% retention). This is a significant change from the previous system where RADs were fully refundable.

The decision between paying a RAD, DAP, or combination is one of the most consequential financial choices families face in aged care. We model each scenario based on the individual’s full financial position to identify the most cost-effective approach.

What Happens to the Family Home?

One of the most common questions families ask is whether to sell the home, rent it out, or hold onto it. If a spouse or “protected person” (such as a dependent child or carer) still lives in the home, it is exempt from the aged care means test. If the home is vacated, approximately $208,000 of its value (indexed) is included in the assets assessment.

Selling the home may free up capital for a RAD, but it also increases assessable assets, which can raise means tested fees and reduce Age Pension entitlements. Renting the home generates income but adds to the income test. Holding it vacant may preserve its exempt status for a period but produces no income. We work through each scenario with families to understand the net financial impact, taking into account capital gains tax implications, Centrelink treatment, and the estate planning consequences for beneficiaries.

Age Pension and Centrelink in the Aged Care Context

Aged care decisions and Age Pension entitlements are closely linked. Changes to asset structures, income streams, and accommodation payment choices all affect pension eligibility. For a full Age Pension, the income free area is currently $218 per fortnight for singles, and the asset free threshold is $314,000 (homeowner) or $566,000 (non-homeowner) for singles. For couples, the combined asset threshold is $470,000 (homeowner) or $722,000 (non-homeowner).

When one member of a couple enters care, they may be assessed as an “illness-separated couple,” which can actually increase the combined Age Pension entitlement because each partner is assessed individually with separate thresholds. We help families navigate this process with Services Australia to ensure they are receiving every entitlement available to them.

Learn more about our retirement planning services.

Asset Restructuring and Estate Planning for Aged Care

How assets are structured before and during aged care can have a significant impact on fees, tax, and what is ultimately passed on to beneficiaries. Key considerations include whether assets should be restructured into a partner’s name to reduce the care recipient’s assessable assets, how superannuation death benefit nominations are structured (since taxable components paid to non-dependants can attract up to 17% tax plus Medicare levy), whether account-based pensions should be restructured to limit tax on estate transfers, and whether funeral bonds or gifting strategies can legitimately reduce assessable assets within Centrelink’s gifting rules.

These decisions require careful coordination between aged care advice, estate planning, and tax strategy. Our team works across all three to ensure nothing is missed.

For those with self-managed super funds, our SMSF service ensures the fund is structured optimally for the transition into aged care.

Changes Under the New Aged Care Act (From 1 November 2025)

The new Aged Care Act introduced several important changes for residents entering care from 1 November 2025. These include RAD retention at 2% per annum (capped at 5 years), DAP indexation twice yearly in line with CPI, and new fee categories replacing the means tested care fee for new entrants (Non-Clinical Care Contribution and Hotelling Supplement Contribution). Residents already in care before this date generally retain their existing fee arrangements unless they choose to opt in to the new system.

Understanding which fee arrangement applies to your family member, and whether opting in to the new system would be beneficial, is an important part of the advice we provide. We also help families understand how the insurance landscape changes as a family member enters care, including whether existing policies should be retained, modified, or cancelled.