Residential aged care in Australia involves several layers of fees that depend on your income, assets and how you choose to pay for accommodation. This guide explains the means test, the RAD and DAP options, and the role of the family home in plain, practical language for Victorians approaching or navigating this decision. It is general information only — not financial, legal or medical advice — and every person's situation is different enough that professional guidance is strongly recommended before signing anything.
Why aged care fees feel so complicated — and how to read them
Aged care in Australia is not a single flat fee. It is a structure of separate charges, each calculated differently and each drawing on different parts of your financial picture. For many families — including those who have worked hard, owned property and saved carefully over decades — the first encounter with this system can feel like reading a contract in a second language. That is not a personal failing. The system genuinely has layers, and understanding each one separately makes the whole thing considerably clearer.
At its core, residential aged care has three main cost components: a basic daily fee that nearly everyone pays, a means-tested care fee that depends on your assessed income and assets, and an accommodation payment that covers your room. Each of these is calculated, capped or waived differently, and the means test sits behind more than one of them. Before any numbers are discussed, it is worth knowing that the figures, thresholds and caps change — sometimes annually — and this guide deliberately does not quote specific dollar amounts. Instead, it tells you where to find the current figures directly from the government source.
One thing that often surprises families is that the process starts well before you choose a facility. The financial assessment is done by Services Australia, separately from the care assessment done through My Aged Care. Both need to happen, and the financial assessment result shapes what you will actually be quoted by a provider. Starting early, before a health crisis forces a rushed decision, makes a very real difference to the outcome.
The three fee layers: basic daily fee, means-tested care fee, and accommodation
The basic daily fee is charged to virtually all residents in a government-subsidised residential aged care facility. It is set as a percentage of the single age pension rate, so it adjusts when the pension adjusts. Because it is tied to the pension, the figure you read in a brochure today may not be the figure that applies when you move in. Services Australia and My Aged Care both publish the current rate. This fee covers everyday living costs — meals, laundry, utilities — and is not means-tested.
The means-tested care fee is the part that varies most between individuals. Once Services Australia has assessed your income and assets, it determines whether you contribute to the cost of your care beyond the basic daily fee, and if so, how much. There is an annual cap on this fee and a lifetime cap, meaning your contribution cannot keep climbing indefinitely. Again, these caps are adjusted periodically, so the right place to check the current figures is directly at servicesaustralia.gov.au or by calling the Financial Information Service.
The accommodation payment is separate again. It pays for the physical room and is negotiated between you and the provider within a regulated framework. This is where the RAD and DAP options come in — covered in their own section below. Not everyone pays the full accommodation cost; if your assessed means fall below a certain threshold, the government contributes to or fully covers accommodation. If your means are above the threshold, you pay the full amount — but you have flexibility in how you pay it.
What is a means test and how does it work?
The means test for residential aged care is an assessment of both your income and your assets, combined into a single figure called your 'means-tested amount'. This combined approach differs from some other government assessments that look only at income or only at assets. Services Australia conducts the assessment using information you (or your authorised representative) provide, and the result determines both your means-tested care fee and your accommodation supplement eligibility.
Income in the assessment includes age pension payments, superannuation income streams, income from investments, and similar sources. Assets include bank accounts, investments, superannuation balances (depending on your age and whether they are in accumulation or pension phase), and property — with specific rules about the family home. The assessment produces a combined figure, and your fees are then calculated by applying the relevant formula to that figure. The formula and the thresholds it uses are set by the government and updated regularly.
To get an indicative picture before formally applying, Services Australia offers a fee estimator tool at their website. It is not binding, but it gives families a working number to plan around. The formal assessment requires lodging a form — currently the SA457 or equivalent, though form numbers can change — and Services Australia will write to you with your assessment result. That letter is what providers use to calculate your fees. Keeping a copy and reviewing it carefully before signing any residential care agreement is strongly advised.
RAD and DAP explained in plain English — and the combination option
RAD stands for Refundable Accommodation Deposit. It is a lump sum you pay to the aged care provider for your room. The key word is refundable — when you leave the facility (or when the estate is settled), the full RAD amount is returned to you or your estate, minus any agreed deductions such as unpaid fees. Think of it as closer to a bond than a purchase. The provider holds the money while you are a resident and must refund it within a set timeframe after you leave. The RAD amount is set by the provider but must be published on the My Aged Care website, so you can compare room prices across facilities.
DAP stands for Daily Accommodation Payment. Instead of paying a lump sum, you pay a daily rental-style fee for your room. The DAP is calculated by applying the Maximum Permissible Interest Rate (MPIR) — set by the government and updated quarterly — to the RAD amount for that room. In other words, the DAP is essentially the interest you would have earned on the RAD if you had paid it as a lump sum. If the MPIR goes up, the DAP goes up. Services Australia publishes the current MPIR.
The combination option allows you to pay part of the accommodation cost as a lump sum RAD and part as an ongoing DAP. This suits people who want to preserve some capital, retain some liquidity, or are uncertain about the length of stay. There is no single right answer — it depends on your financial position, your estate planning wishes, and sometimes on what a particular provider will accept. This is exactly the kind of decision where a conversation with an accredited aged care financial specialist, or at minimum the free Financial Information Service, pays for itself many times over. The RAC (Refundable Accommodation Contribution) is the equivalent term used when the government determines you pay a reduced accommodation amount — same mechanics, different name.
How is the family home treated in the assessment?
The family home is often the largest asset a person owns, and its treatment in the aged care means assessment is one of the most commonly misunderstood aspects of the whole system. The general rule is that the family home is included as an asset in the means assessment, but only up to a capped value — meaning that even if your home is worth considerably more than the cap, only the capped figure is counted. The cap amount is set by the government and updated periodically; the current figure is available through Services Australia.
There are important exemptions and protections. If a protected person is living in the home — this includes a spouse or partner, a dependent child, a carer who has lived there for at least two years and would otherwise need to apply for government housing, or a close family member who has lived there for at least five years and receives an income support payment — the home is generally exempt from the assets assessment entirely for as long as that person continues to live there. This exemption is significant and is one reason why family circumstances matter so much to the final fee calculation.
It is also worth understanding that entering residential care does not automatically mean you must sell the home. Many families choose to retain the property, rent it out, or allow a family member to continue living there, at least initially. The financial and practical implications of each choice are different, and they intersect with capital gains considerations, Centrelink/DVA assessments, and estate planning in ways that genuinely require qualified advice. The family home question is not one to resolve based on general reading alone.
The Financial Information Service and specialist advice: why both matter
Services Australia runs a free service called the Financial Information Service, or FIS. FIS officers are available by phone and in person and can explain how the assessment works, walk through the fee structure in plain language, and help families understand what information they need to gather. Critically, FIS officers do not make recommendations or tell you what to do — they inform. There is no means test to access FIS, no cost, and no obligation. For a family encountering this system for the first time, a FIS call is often the clearest first step available.
Beyond the FIS, there is a category of adviser known as an aged care specialist or accredited aged care financial planner. These are financial planners with specific training in aged care legislation and fee structures. They can model different scenarios — paying a full RAD versus a DAP versus a combination, retaining the family home versus selling, the impact on ongoing pension entitlements — and help you understand the trade-offs. Their advice is not free, but for a decision that can involve hundreds of thousands of dollars over several years, the cost of proper advice is modest by comparison.
One practical point worth noting: aged care providers are required to give you a written residential care agreement before or at the time of entry, and you are entitled to time to review it. Do not feel pressured to sign on the day of admission, particularly if the financial assessment result has only just arrived. If a health situation is urgent, provisional arrangements can sometimes be made. Ask the provider and, if needed, contact My Aged Care for guidance on your rights as a prospective resident.
Residential aged care: fees, means testing, and choosing a facility
Once the financial assessment is done and the fee structure is clearer, choosing a facility is partly a financial comparison and partly a quality and lifestyle question. My Aged Care publishes the accommodation prices — RAD and DAP amounts — for every government-subsidised residential facility in Australia, so comparing room costs across facilities in your area is straightforward. The Aged Care Quality and Safety Commission publishes compliance and quality information for each facility, which is worth reading carefully.
Location matters considerably for older Victorians, particularly for those with family, friends or community connections in a particular area. For someone with strong ties to a specific suburb or region — say, a community where Greek language services, cultural meals or religious observance are part of daily life — the right facility may not be the cheapest one, and that is a legitimate consideration. Many facilities in Victoria do offer culturally specific programs or have staff with relevant language skills; asking directly during a facility tour is the most reliable way to find out.
Visiting facilities before making a decision is strongly encouraged. Ask about staffing ratios, how the facility handles medical appointments and allied health visits, what the process is if care needs increase, and what the refund timeline is for the RAD. These are practical questions with practical answers, and a well-run facility will answer them without hesitation. Taking a family member or trusted friend to facility visits can help — a second set of eyes and ears catches things that are easy to miss when you are already carrying the weight of the decision.
Key takeaways
- Residential aged care has three distinct fee layers — basic daily fee, means-tested care fee, and accommodation payment — each calculated separately.
- The means test assesses both income and assets combined; the family home is included but only up to a government-set cap, with exemptions for protected persons.
- A RAD is a refundable lump sum; a DAP is a daily rental equivalent; a combination of both is permitted and often used.
- The RAD is returned to you or your estate when you leave — it is not a purchase price for the room.
- The Financial Information Service (FIS) through Services Australia is free, requires no appointment to call, and is the recommended first stop for families navigating the fee structure.
- Never sign a residential care agreement without having the written document reviewed and understanding every fee it commits you to — you are entitled to time to consider it.
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Indicative prices only — always confirm with the operator before booking.
Frequently asked questions
How much will aged care cost me?
There is no single answer because the cost depends on your assessed income and assets, the facility you choose, and how you elect to pay for accommodation. The basic daily fee applies to nearly all residents and is set as a percentage of the single age pension. The means-tested care fee varies by individual and is capped annually and over a lifetime. Accommodation costs depend on the facility's published RAD or DAP for the specific room. Services Australia provides a free fee estimator tool at servicesaustralia.gov.au that gives an indicative figure based on your circumstances — it is the right starting point before comparing specific facilities.
What is a means test and how does it work?
The aged care means test is an assessment conducted by Services Australia that looks at both your income and your assets together, producing a combined 'means-tested amount'. This figure determines whether you pay a means-tested care fee on top of the basic daily fee, and whether you qualify for a government accommodation supplement. You (or your representative) provide the financial information via a form lodged with Services Australia, and they issue a written assessment result. The thresholds and formulas used are set by government and updated regularly — the current figures are available directly through Services Australia rather than any fixed guide.
What are RAD and RAC (refundable accommodation payments)?
A RAD (Refundable Accommodation Deposit) is a lump sum paid to a residential aged care provider for your room. It is refundable — the full amount must be returned to you or your estate when you leave, minus any agreed deductions. A RAC (Refundable Accommodation Contribution) works on the same principle but applies when the government determines you pay a reduced accommodation amount based on your assessed means. The alternative to a lump sum is a DAP (Daily Accommodation Payment), which is a daily fee calculated using the government's Maximum Permissible Interest Rate applied to the room's RAD value. You can also pay a combination of both. The RAD amount for any government-subsidised room must be published on the My Aged Care website.
Residential aged care: fees, means testing, and choosing a facility.
Choosing a residential aged care facility involves understanding your fee assessment first, then comparing facilities on accommodation cost, quality, location and services. My Aged Care publishes accommodation prices for all government-subsidised facilities in Australia. The Aged Care Quality and Safety Commission publishes quality and compliance information for each provider. Your means assessment result from Services Australia will show what fees apply to you specifically. Visiting shortlisted facilities in person, asking direct questions about staffing, care escalation and RAD refund timelines, and if possible taking a family member along, are all practical steps before committing to a residential care agreement.
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- My Aged Care — official entry point for aged care in Australia
- Services Australia — Aged Care fees and assessments
- Services Australia — Financial Information Service (FIS)
- Aged Care Quality and Safety Commission — provider information
- Australian Government Department of Health and Aged Care — residential care
