The cost of residential aged care

From 1 November 2025, the contributions made by people entering residential aged care have changed. As a result, it’s estimated that about half of the new residents will pay more.

It remains the case that those assessed as being able to afford their care are asked to contribute and those with income and assets below a certain threshold will be supported by the government.

In part, changes under the new Aged Care Act are designed to make the aged care system fairer and more sustainable.

The main types of costs are:

• An accommodation cost is a contribution towards the cost of accommodation
• Daily resident fees are a contribution towards ongoing living and care costs and may be a combination of:
  • Essential living expenses, including a basic daily fee that is 85% of the basic single age pension and a means-tested hotelling contribution
  • Contributions towards the cost of care in the form of a non-clinical care fee
  • Higher everyday living fee covering selected additional services that a provider can charge.

How much a resident can afford to pay towards these costs is based on a formula called the means-tested amount. This calculates an affordability figure based on a combined income and assets test.

If you are assessed as having low financial means (assessable assets below the current $210,555 threshold and subject to income), the government may step in to set a lower price and pay some of the costs on your behalf. If this is the case, you may be asked to pay a daily accommodation contribution. For information on the treatment of the family home, see the section ‘Do I have to sell my home?’ below.

The cost of accommodation: Flexible payment options

Depending on your financial situation you may be required to make an accommodation payment, which pays for your right to move in and live in the care service. You can choose to buy or rent.

From 1 January 2025, the government gave all facilities the green light to charge up to $750,000 for any room in residential aged care without having to justify why. Facilities that want to charge more than $750,000 for a room must get approval first.

RADs vs DAPs

For those who are not low-income means, you can choose to pay a lump sum refundable accommodation deposit (RAD) or daily accommodation payments (DAP), or a combination of the two.

If you don’t have access to enough liquid funds to pay the full cost – it may be tied up in property, superannuation or a share portfolio – it may still be affordable.

The RAD is the market price for a room in residential aged care. It is set by the facility itself based on factors including the age and location of the facility and the size and aspect of the room.

Prior to 1 November 2025, RAD was fully refunded to you or your estate once you leave a facility. Under the new rules, a facility will deduct 2% of the amount of RAD paid each year, up to 10%.

If you allowed the care provider to deduct other fees from this money instead of paying those fees from your bank account, the amount refunded to you will be lower again, as you are essentially spending some along the way.

Is my Refundable Accommodation Payment secure?

A lot of people worry about what happens if the provider goes bust.

If you paid the RAD to an approved provider, the federal government guarantees the repayment of your money. This takes away the risk that your money could be lost. The facility can only use the money for certain things, like offsetting debt or investing in bonds.

Payment options

Not everyone has half a million dollars (or whatever the accommodation provider is asking) sitting ready in the bank to pay for a facility.

You have a choice to pay the lump sum in full or in part or a combination of both.

Whatever you don’t pay towards the RAD will be charged as a daily interest rate, known as a ‘daily accommodation payment’.

You can elect to pay nothing up front and essentially rent the room and pay only the daily accommodation payment.

If you choose to start with a daily fee, you can change your mind at any time and pay all or some of the RAD.

Do I have to sell my home?

One of the biggest questions people have around paying for residential aged care is whether they must sell the family home.

The answer is: it depends.

In the case of a couple, if only one person is going into care and the other intends to remain in the house, then the house is exempt from the income and assets assessment. It is also exempt if there is a protected person living in the home, such as a dependent child, a carer or a relative who is also eligible to receive income support.

If there is no protected person, then the house is included in the income and assets assessment, although only up to the current capped value of $210,555.

If this person has the assets to pay for their accommodation without selling, the home may not have to be sold. However, two years after moving into care, the market value of the house will be counted towards the income and assets assessment.

If a house is sold and the proceeds are paid towards the RAD, the RAD is an exempt asset for the calculation of Age Pension eligibility.

The cost of care and fee caps

There are care costs in addition to the accommodation costs.

From 1 November 2025, these costs changed to better reflect the cost of care. They apply to anyone entering care after that date.

Anyone already in care before this date will be ‘grandfathered’ and continue to pay the existing costs, which may be a means-tested care fee with an annual cap.

From 1 November 2025, the costs of care are:

• A basic daily care fee paid by everyone. The fee is set by the government and is based on 85% of the full Age Pension, updated on 20 March and 20 September each year. The current rate is $65.55 per day, or $23,925.75 per year
• A hotelling contribution up to $22.15 a day (indexed) based on their means-tested assessment
• Depending on a person’s financial means, there will be a capped contribution towards the cost of providing personal care, care supplies and equipment through a non-clinical care contribution. This fee replaces the means-tested care fee for residents who entered before 1 November. It is capped at $101.16 per day (indexed)

Higher everyday living fees are the fees that a provider can charge for higher standards of living or additional services like menu choice or wine with a meal. Whereas previously there may have been a mandatory fee for a bundle of services, going forward residents can only be asked to pay for the services they use.

For any means-tested contribution made towards the cost of either home care or residential care, there is a $130,000 (indexed) lifetime cap.

The hotelling and non-clinical care contributions are based on your income and assets.

Broadly, a resident on a part pension or a self-funded retiree should expect to pay a non-clinical care contribution and a hotelling contribution, with a few exceptions.

Residents may be exempt from paying a means-tested fee if they have income and assets below relevant thresholds, are ex-prisoners of war or are residents with dependent children.

Retirement villages versus residential care

When care is needed, many people compare the option of a retirement village against residential aged care. While both provide supportive environments for older people, they are not direct substitutes. The funding and care implications are quite different.

Whether it is downsizing to a smaller house or unit, buying into a retirement village or moving into residential care, the comparison is much more than a property transaction based on price and size.

In a retirement village, you may have access to a whole unit or villa, while for a similar price in residential aged care you have a single room only. But it is important to think about how much support you need each day.

Retirement villages offer the opportunity to live in a community of older people. The village operator will maintain the external building and community garden areas, but it is still independent living.

For an additional cost, you may be able to access support inside your home, but services vary from one retirement village to the next. Unless these services are provided through a Home Care Package, costs are not subsidised by the government.

By comparison, residential aged care bundles fully supported living and care together with accommodation. This care is provided 24/7 and the costs are heavily subsidised by the government.