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Understanding aged care costs in Australia

The three costs that make up an aged-care bill

Permanent residential aged care in Australia is built from three moving parts, and understanding which is which stops the total feeling like an unknowable lump sum. Everyone pays the basic daily fee, set at 85 per cent of the single Age Pension, which works out around $65 a day or roughly $24,000 a year in 2026 and is indexed each March and September as the pension moves. It covers everyday living, meals, laundry, cleaning and power, and no resident is exempt from it. On top of the basic daily fee sit a means-tested care fee and an accommodation cost, and it is those two, not the daily fee, that swing your total from modest to very expensive depending on what you own and earn.

How the means-tested care fee is worked out

The means-tested care fee is your contribution toward the clinical and personal care the home provides, calculated by Services Australia from a combined assessment of your assets and income. Your former home is included, but only up to a capped value (around $206,000 in 2026) rather than at its full market price, which is why families who assume the whole house counts usually overestimate the fee badly. Two safety nets, both indexed twice a year, cap the damage: an annual cap of about $35,000 and a lifetime cap near $84,000 in 2026. Once you reach a cap you stop paying the means-tested care fee even if the assessment says you could afford more, and the lifetime cap also counts any income-tested fees you paid earlier on a home care package, so long-stay residents and their families watch it closely.

Accommodation: RAD, DAP, or a mix

Accommodation is the third and usually largest cost. A room you might be quoted at $570,000 or more nationally in 2026 can be paid in three ways. A Refundable Accommodation Deposit (RAD) is a lump sum that is fully refunded when you leave, less any amounts you agreed the provider could deduct, and it is exempt from the Age Pension assets test while held. A Daily Accommodation Payment (DAP) charges the same room price as an ongoing daily amount, calculated using the Maximum Permissible Interest Rate, which sat near 8 per cent in early 2026, so a $570,000 room costs roughly $45,000 a year as a DAP and is not refunded. You can also split the two, paying part as a lump sum and the remainder daily, which many families use to balance cash flow against pension and interest outcomes.

Low-means and supported residents

Not everyone faces the full schedule. If your income and assets fall under the supported-resident thresholds, broadly income under about $35,000 and assessable assets under roughly $63,000 in early 2026, you are assessed as a low-means or supported resident. In that case the government covers all or part of your accommodation, you pay a smaller accommodation contribution rather than a market room price, and your means-tested care fee may be little or nothing. The basic daily fee still applies. Because the thresholds move with indexation and depend on the precise mix of assets and income, the only way to know your category for certain is the formal means assessment, not a rule of thumb.

Why a specialist usually pays for itself

Every dollar in aged care interacts with something else: a RAD changes your pension, a DAP changes your cash flow, gifting before entry can trigger deprivation rules, and selling or keeping the family home shifts both the means-tested fee and the assets test. The decision to keep, rent out or sell the former home is often the single biggest financial lever, because each path treats the property differently under the pension assets test and the aged-care means assessment, and the right answer for one family is the wrong one for the next. That web of interactions is why families routinely model the choices with an aged-care financial specialist before committing, and why a few hundred dollars of advice can save tens of thousands over a multi-year stay. There are also short timeframes to watch: you generally have 28 days from entry to decide how you will pay for accommodation and up to six months to pay a RAD, so understanding the options early avoids being rushed into a costly default. Treat the figures here as an indicative guide only; confirm your exact position with My Aged Care, Services Australia and a licensed adviser before signing a resident agreement.

A worked example of a full-fee resident's first year

Putting figures against the three components shows how quickly they stack. Imagine a self-funded retiree entering a home with an advertised room price of $570,000. The basic daily fee at roughly $65 a day costs about $23,700 for the year and is unavoidable. If they pay the room as a Daily Accommodation Payment at a Maximum Permissible Interest Rate near 8 per cent, that is roughly $45,000 a year, none of it refundable. A means-tested care fee for someone in that position could run several thousand dollars a year up to the annual cap of about $35,000. Choose the Refundable Accommodation Deposit instead and the $45,000 accommodation charge disappears entirely, replaced by $570,000 of capital tied up but fully refunded on exit, which is why the RAD versus DAP decision usually dwarfs every other lever. A half-and-half split would mean a $285,000 lump sum plus roughly $22,500 a year, and the pension consequences of each option differ again.