Paying for Aged Care — The Means Test Explained

How Aged Care Fees Are Calculated

If you or a family member enters aged care, the fees you pay are determined by a means test conducted by Services Australia. The test considers your income, assets, and the value of your home to determine how much you contribute towards care costs. The government pays the remainder. The system is designed to ensure those with greater financial resources contribute more, while those with fewer means receive additional support.

The Income Test

The income test looks at your assessable income, including Age Pension, superannuation income streams, deemed income from financial investments, rental income, and part-time work income. A portion of your income goes towards the cost of care, known as the means-tested care fee. There is an annual and lifetime cap on this fee to protect against excessive costs.

The Assets Test and Your Home

The assets test considers your assessable assets, including cash, shares, superannuation (if you are over Age Pension age), and investment properties. Your former home is generally exempt from the assets test if your spouse or a dependent relative still lives there. If the home is not occupied by a protected person, its value is included up to a cap. The value of your home above the cap threshold will affect your means-tested care fee.

Refundable Accommodation Deposit (RAD)

If you enter residential aged care, you may be asked to pay a Refundable Accommodation Deposit (RAD) — a lump sum payment that is refunded when you leave care or pass away. You can also choose to pay a Daily Accommodation Payment (DAP) or a combination of both. The amount depends on the aged care home and your means test assessment. If your means test shows you cannot afford the full accommodation payment, the government may subsidise it.

Getting Professional Advice

Aged care financial advice is complex and the rules change frequently. Your financial adviser, if they hold the appropriate qualifications, can help you structure your finances before entering care. The decisions you make about selling your home, accessing your super, and structuring your income can significantly affect your aged care fees.

Understanding Aged Care Costs

Entering aged care involves several types of costs. The basic daily fee covers everyday living costs like meals, laundry, and utilities, and is set at 85% of the single Age Pension rate (approximately $60 per day in 2025-26). The means-tested care fee is an additional amount based on your assessable income and assets, capped at around $34,000 per year and $76,000 over your lifetime.

The accommodation payment is the largest potential cost. If your assessable assets exceed the threshold (approximately $200,000 for a single home-owner entering care from July 2025), you will be required to pay the accommodation payment. This can be paid as a Refundable Accommodation Deposit (RAD) — a lump sum that is refundable when you leave care — or a Daily Accommodation Payment (DAP) — an ongoing daily fee. Many people choose a combination of RAD and DAP.

Means Test Assessment Process

Services Australia (Centrelink) conducts a means test assessment when you enter aged care. The assessment considers your assessable income (including deemed income from financial assets and account-based pensions) and assessable assets (including your home for the first 2 years if you entered care after 1 January 2016, then partially assessed after 2 years). The means test determines the level of government subsidy and how much you contribute.

Key assets that are exempt from the means test include: your home if it is occupied by a protected person (spouse, dependent child, or carer who has been living with you), personal effects and household contents, and certain funeral bonds. If your spouse remains living in the home, the home is fully exempt from the aged care means test regardless of value.

Strategies to Manage Aged Care Costs

Planning for aged care costs should start well before you need care. One strategy is to consider the interaction between the Age Pension means test and the aged care means test. Reducing assessable assets (e.g., by gifting within limits, home renovations, or prepaying funeral expenses) can reduce both the means-tested care fee and the accommodation payment.

Another strategy is choosing how to pay the accommodation payment. Paying a larger RAD (lump sum) reduces the DAP (daily payment), which may improve cash flow if you have sufficient assets. However, the RAD is an assessable asset for Age Pension purposes, creating a trade-off between aged care costs and pension entitlements. Specialist aged care financial advice is strongly recommended given the complexity of the rules.

Frequently Asked Questions

Can I negotiate the accommodation payment with a care home?
Yes. The accommodation payment price (RAD) is published by each care home, but you can negotiate a lower price, especially if the home has vacancies. The government has introduced reforms to improve price transparency, and asking for a discount is common. Any discount applies to the RAD, which proportionally reduces the DAP.

What happens to my Age Pension when I enter aged care?
Your Age Pension continues, but the means test may change because your home becomes assessable (after the first 2 years) and some of your income goes toward aged care costs. Your pension may reduce, but you also have lower living costs since meals, utilities, and care are provided.

Can I sell my home after entering aged care?
Yes, but the proceeds from the sale become assessable assets from the day of settlement. If you sell within the first 2 years, the home was already assessable (for the means-tested care fee but not the accommodation payment). After 2 years, the home was already in the means test, so selling does not change the assessment. The key is to plan the timing.

What is the difference between RAD and DAP?
A Refundable Accommodation Deposit (RAD) is a lump sum paid upfront that is refunded (without interest) when you leave care. A Daily Accommodation Payment (DAP) is an ongoing daily fee. You can pay any combination of RAD and DAP. For example, paying half the RAD reduces the DAP by half. The RAD is an asset for Age Pension purposes; the DAP is an expense.