Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 92

‘Tis the season, and aged care may be on the wish list

This article is the final in our 3 part series on the different ways people receive aged care in Australia and the timing is just right. For many people, amongst the stress of cooking, buying presents and visiting family and friends, this Christmas will be the worry of finding aged care in the new year for a loved one.

Many of us firmly announce that we have no intention of moving into an aged care facility: “An old people’s home? Not me!” More than one-third of men and one-half of women who reach the age of 65 are expected at some time to live in aged care. And often, when they take the time to investigate their options, they are pleasantly surprised.

Aged care accommodation costs

Significant reforms to the aged care industry occurred on 1 July 2014. These reforms changed the amount and way in which people can pay for their accommodation and the means testing arrangements for calculating their cost of care.

Let’s start with accommodation payments. Apologies for the jargon and abbreviations but anyone looking for aged care solutions has to get their head around them.

Aged care facilities publish the market price of their accommodation on their websites, in their marketing materials and on the government’s My Aged Care website. The published price takes two forms: the lump sum amount (known as a Refundable Accommodation Deposit or RAD) and the daily charge amount (known as a Daily Accommodation Payment or DAP). The resident can choose to pay for their cost of accommodation by RAD or DAP or in combination. This includes the ability to have the DAP deducted from the RAD. The DAP is simply calculated on the unpaid RAD amount at 6.63%.

For example, the facility may have a market price of $400,000 RAD or $72.66 per day DAP but the resident may choose to pay a combination of $250,000 by RAD and $27.25 per day by DAP. A resident can also choose to have their DAP deducted from their RAD. Where this is the case a recalculation occurs at the end of each month for a new DAP amount. Essentially it is a compound interest effect to cover the shortfall, not unlike a reverse mortgage. Aged care facilities set their own price up to $550,000, beyond this the price needs to be approved by the Aged Care Pricing Commissioner.

Contributing to the cost of care

When it comes to making a contribution towards your cost of care, there are three payments.

The first is paid by everyone and is known as the Basic Daily Fee. It is set at 85% of the Age Pension, currently $47.15 per day and contributes towards the cost of meals, laundry, utilities etc.

The second is the Means Tested Care Fee. This is an asset and income assessed fee, with the amount the resident contributes offsetting the government funding. For example, if a resident had a means tested care fee of $40 per day and the facility was due to receive $70 per day of funding for the resident, the facility would receive $30 per day from the government and a letter advising that the resident can afford to pay the other $40 as a means tested care fee.

The formula for determining the means tested care fee is:

50c per dollar of income above $25,118.60 (Single) $24,650.60 each (Couple) plus
17.5% of assets between $45,500 - $155,823.20 plus
1% of assets between $155,823.20 - $376,469.60 plus
2% of assets above $376,469.60
Minus $53.04 per day

What is considered assets and income?

Income is the same assessment as for pension; deeming on financial assets, taxable income on trusts and investment properties etc plus pension entitlement (note the pension supplement is not included)

Assets are the assessable assets for pension; bank accounts, car, contents, investment property etc plus up to $155,823.20 of the former home plus any amount paid to the aged care facility as a Refundable Accommodation Deposit (RAD)

The former home is exempt if a protected person is living there. A protected person is a spouse or dependent child or in other circumstances a carer or close relative.

Where the resident’s means tested amount is less than $53.04 per day they are classified as a ‘low means’ resident and the calculated amount is their Daily Accommodation Contribution. You can read more about Low Means Residents in our article here.

The third fee is the ‘extra service’ or ‘additional service’ fee. These fees relate to a higher standard of accommodation and lifestyle services or services that are being provided on a user pays basis.

For example, a resident who moves to an extra service bed, paying $15 per day as an extra service fee, will be receiving a higher standard of accommodation and also receives a choice of meals and a glass of beer or wine with dinner. The extra service fee ranges from around $15 per day to $140 per day and the standard of accommodation and services is commensurate with the price. Residents who choose to live in extra service accommodation cannot opt out of the extra service fee even if they no longer use some or all of the lifestyle services.

Additional services, on the other hand, are not linked to a higher standard of accommodation, they are simply lifestyle services provided on a user pays basis. For example, a resident may choose to receive the newspaper and a glass of wine with dinner and be charged $12 per day. If the resident no longer wishes to receive the services they can opt out, likewise, if they wish to receive more services they can opt in.

It’s not simple but it’s supposed to offer choice

People now have greater choice about the type of care they access and the way in which they pay for it. However, with choice comes the responsibility to make informed decisions. The way in which someone chooses to fund their care can have far-reaching implications from the cost of care itself, their eligibility for pension, their liability for tax, their ability to afford care in the longer term and the assets left to their estate. There is no substitute for specialist advice in this complex area.

 

 

Rachel Lane is the Principal of Aged Care Gurus and oversees a national network of financial advisers dedicated to providing quality advice to older Australians and their families. Read more about aged care facilities in the book “Aged Care, Who Cares; Where, How and How Much” by Rachel Lane and Noel Whittaker. This article is for general educational purposes and does not address anyone’s specific needs.

 

  •   12 December 2014
  • 2
  •      
  •   

RELATED ARTICLES

Aged care reforms: are the changes fair?

We need hard conversations about frailty planning

Why the poor will pay more for aged care next year

banner

Most viewed in recent weeks

Building a lazy ETF portfolio in 2026

What are the best ways to build a simple portfolio from scratch? I’ve addressed this issue before but think it’s worth revisiting given markets and the world have since changed, throwing up new challenges and things to consider.

Meg on SMSFs: First glimpse of revised Division 296 tax

Treasury has released draft legislation for a new version of the controversial $3 million super tax. It's a significant improvement on the original proposal but there are some stings in the tail.

Ray Dalio on 2025’s real story, Trump, and what’s next

The renowned investor says 2025’s real story wasn’t AI or US stocks but the shift away from American assets and a collapse in the value of money. And he outlines how to best position portfolios for what’s ahead.

10 fearless forecasts for 2026

The predictions include dividends will outstrip growth as a source of Australian equity returns, US market performance will be underwhelming, while US government bonds will beat gold.

13 million spare bedrooms: Rethinking Australia’s housing shortfall

We don’t have a housing shortage; we have housing misallocation. This explores why so many bedrooms go unused, what’s been tried before, and five things to unlock housing capacity – no new building required.

10 things I learned about dementia and care homes from close range

My mother developed dementia before eventually dying in June last year. She was in three aged care homes before finding the right one. Here is what I learned along the way.

Latest Updates

Taxation

Is there a better way to reform the CGT discount?

The capital gains tax discount is under review, but debate should go beyond its size. Its original purpose, design flaws and distortions suggest Australia could adopt a better, more targeted approach.

Property

It's okay if house prices drop

The assumption that falling house prices are electorally fatal has shaped policy for decades. Evidence from upzoning suggests affordability can improve without reducing overall housing wealth.

Investment strategies

Investment bonds for intergenerational wealth transfer

Investment bonds can be a versatile and a tax-effective option for building wealth for longer-term investment goals. They can also be used as an estate planning tool, enabling the smooth transfer of wealth to younger generations.

Investment strategies

Why switching to income may make sense in 2026

Investors are jumpy as valuations continue to rise and income investing may provide a respite. In a challenging market for income investing AML offers their top picks.

Interviews

Retiring Schroders boss on lessons he’s learned, industry changes, and the market outlook

CEO Simon Doyle is retiring after 38 years in the finance industry. In an interview with James Gruber, he shares the three main lessons he’s learned, and where he sees opportunities and risks in markets today.

Investment strategies

How US midterm elections affect the markets

Investors may overlook the US midterms amid global events, but they could still impact markets. History shows markets react during midterm years, with increased volatility and lower returns. Will this year be any different?

Investing

Does increasing geopolitical risk lead to higher equity market returns?

Increasing geopolitical tensions has investors on edge but one study shows evidence of a war premium for equity markets.

Sponsors

Alliances

© 2026 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.