Aged care fees explained: what you actually pay

Aged care fees are one of the most confusing parts of the system, and the confusion is not an accident of poor explanation. There are several separate fees, they are calculated by different bodies, some are capped and some are not, and the rules have been changing. This guide explains the pieces in plain English so you can see how a final figure is built up.

This is general information, not financial advice. Aged care fees interact with the Age Pension, tax, the family home, and estate planning in ways that are genuinely complex and personal. Before making a decision, talk to Services Australia and consider the free Financial Information Service they run, and for anything significant get independent financial advice. Because the dollar thresholds, caps, and interest rates change regularly, this guide describes how each fee works rather than quoting figures that would quickly go stale; check the current numbers at My Aged Care or with Services Australia.

Two systems, two fee structures

Aged care costs split along the same line as the care itself: help at home, and care in a residential facility. The fees work differently in each, so it helps to treat them separately.

Before any fee applies, a person needs an aged care assessment to be approved for a care type. The assessment itself is free and is not means tested; fees only enter once you take up a service.

Home care fees

In-home aged care is moving from the old Home Care Package levels to a needs-based model. Whatever the label, the way you contribute follows a consistent logic. There are up to three components.

The basic daily fee

A small daily fee that providers may charge towards everyday living costs. It is set as a modest percentage of the Age Pension and is the same regardless of income. Some providers choose not to charge it; it is worth asking.

The income-tested or means-tested care contribution

If income (and, under the newer rules, assets) is above a threshold, a person contributes more towards the cost of their care. Services Australia works this out, not the provider. Lower-income full pensioners typically pay little or nothing here; self-funded retirees pay more. Importantly, the government generally funds clinical care (such as nursing) regardless of means, while the consumer contribution falls more on everyday living and independence-type supports.

Caps and lifetime limits

Contributions to home care are capped. There are annual limits and an overall lifetime limit that counts both home care and residential care contributions together, so what you pay at home reduces what you can be asked to pay later in residential care. These caps are indexed and change over time; check the current figures with Services Australia.

The practical takeaway: a full pensioner receiving care at home often pays only the basic daily fee, or close to it. The further above the pension a person's income and assets sit, the larger their care contribution becomes, up to the caps.

Residential aged care fees

Residential care (a nursing home) has up to four fee components. This is where most of the sticker shock lives, particularly around accommodation.

Basic daily fee

Everyone in permanent residential care pays a basic daily fee towards day-to-day living: meals, laundry, cleaning, power. It is set as a percentage of the single Age Pension and is the same for everyone, regardless of means. It is the one fee no one avoids.

Means-tested care fee

An additional contribution towards the cost of personal and clinical care, payable by those with income and assets above the thresholds. Services Australia calculates it from a combined income-and-assets assessment. It is subject to annual and lifetime caps, and once a cap is reached, no more means-tested care fee is payable. Full pensioners with limited assets often pay little or nothing; the family home is treated under specific rules and is not always counted in full.

Accommodation payment: RAD and DAP

This is the big one, and the part most people find baffling. The cost of the room itself can be paid in two ways, or a mix of both:

• A refundable accommodation deposit (RAD) is a lump sum, paid up front, like an interest-free loan to the facility. It is refunded (less any agreed deductions) when the person leaves or dies. It is government-guaranteed against provider insolvency.
• A daily accommodation payment (DAP) is a regular daily fee instead of the lump sum. There is no large sum to find, but the money is not refundable.

The link between the two is the key concept. A DAP is essentially the RAD converted into a daily rate using a government-set interest rate (the maximum permissible interest rate, or MPIR). So a $400,000 room can be paid as a $400,000 refundable lump sum, or as a daily payment equal to the interest on $400,000 at the MPIR, or as any split: pay part as a lump sum and the rest as a daily payment on the balance. Because the MPIR changes, the daily equivalent of a given RAD changes too; check the current rate before comparing options.

How to choose between RAD and DAP is a genuine financial decision. It affects pension entitlements, what is left in the estate, and whether the family home is sold. This is exactly the kind of question to put to a financial adviser, not to resolve from a web page.

Extra or additional service fees

Some facilities charge extra for higher-end amenities: a better room, premium meals, additional lifestyle services. These are optional and on top of the fees above. Make sure you understand what is genuinely included versus charged as an extra before signing.

Fees side by side

Hardship provisions

If fees would cause genuine financial hardship, there are formal hardship provisions in both home care and residential care. They are not automatic; you have to apply, and you will need to provide financial information. If the numbers do not work, do not simply assume care is out of reach, raise hardship with Services Australia or My Aged Care before ruling anything out.

The family home

The treatment of the family home is the single most asked-about issue, and it deserves proper advice rather than a rule of thumb. In residential care, the home may be exempt from the assets test in some circumstances (for example, if a protected person such as a spouse still lives there) and counted up to a capped value in others. Whether to keep, rent, or sell the home has large consequences for fees, pension, and the estate. This is advice-territory, not a decision to make on assumptions.

Getting the numbers right

A sensible sequence:

1. Get the aged care assessment done and the care type approved.
2. Ask Services Australia for an income and assets assessment so you know the means-tested position before committing.
3. Use the fee estimators on My Aged Care to model scenarios.
4. For residential care, compare specific facilities' room prices and what is included versus charged as extras.
5. For any significant decision, especially RAD versus DAP and what to do with the home, speak to a financial adviser and the free Financial Information Service.

If the destination is residential care, our guides on how to get a parent into aged care and finding residential aged care cover the practical steps alongside the costs.

Frequently asked questions

Will I have to sell the family home to pay for aged care?

Not necessarily. The home is treated under specific rules and is sometimes exempt or only counted up to a capped value, particularly if a spouse or other protected person still lives there. Whether selling, renting, or keeping it is the right move depends on your full financial picture and affects pension and estate outcomes. This is a question for a financial adviser, not a default answer.

What is the difference between a RAD and a DAP?

A refundable accommodation deposit (RAD) is a refundable lump sum paid up front for your room. A daily accommodation payment (DAP) is a non-refundable daily fee instead, calculated as the interest on the equivalent RAD at a government-set rate. You can pay all RAD, all DAP, or a combination. Which is better depends on your finances and is worth professional advice.

Do full pensioners pay aged care fees?

Full pensioners still pay the basic daily fee, which everyone pays. They often pay little or no means-tested care fee because their income and assets are below the thresholds. Accommodation costs in residential care still apply, but low-means residents may have some or all of the accommodation cost met by the government. Services Australia confirms the exact position.

Are aged care fees capped?

The care contribution components are capped, with annual limits and an overall lifetime cap that counts home care and residential care together. Once the lifetime cap is reached, no further means-tested care fee is payable. The basic daily fee and accommodation costs are not capped in the same way. The cap amounts are indexed; check the current figures with Services Australia.

Where can I get free help understanding the fees?

Services Australia runs a free Financial Information Service that provides general information about aged care costs and how they interact with pensions and your finances. My Aged Care has fee estimators and can explain the structure. For advice tailored to your situation, particularly larger decisions, an independent financial adviser is worth the cost.