Australia’s population is ageing, with the number of people aged 85 and over projected to triple in the next four decades. This demographic shift is expected to place significant pressure on aged care services and funding. In response, the Federal Government has introduced a new Aged Care Act, set to take effect from 1 July 2025.

These reforms will affect how care and accommodation costs are structured—with increased contributions required from residents whose assets and income exceed certain thresholds. While hardship arrangements will remain in place to support those unable to afford their contributions, around half of new residents are expected to pay more for their residential aged care under the new system.

Understanding the existing fee structures and the adjustments that will soon take effect is essential for navigating these upcoming changes.

Current fee structures

To understand the new changes, it is important to have an understanding of the existing fee structures for aged care residents:

  • The Basic Daily Fee (BDF): The BDF provides for day-to-day expenses such as meals, laundry and cleaning. All residents pay this fee. The BDF is charged at 85% of the maximum basic rate of the Age Pension for a single person.

  • The Means Tested Care Fee: The Means Tested Care Fee is a contribution towards the costs of nursing and personal care in a residential aged care facility. The amount payable depends on a combined income and assets assessment. Annual and lifetime caps are in place to limit the amount paid in Means Tested Care Fees.

  • Accommodation costs: Everyone who moves into an aged care home negotiates a room price before moving. These can vary significantly depending on the location and facilities. You can pay the accommodation costs as a refundable lump sum, referred to as a Refundable Accommodation Deposit or RAD; in periodic payments, referred to as Daily Accommodation Payments or DAP; or a combination of both. If you pay a RAD, this will be refunded to you or to your estate when you leave the aged care residence.

New fee structures (effective July 2025)

The Government will continue to subsidise the cost of residential care, however there will be an increase in fees for those with assets and income above certain levels. The majority of the reforms will take effect from 1 July 2025. Here’s the key details of the changes:

 
Current
Changes from July 2025 

Accommodation costs

  • Refundable Accommodation Deposit (RAD)
  • Daily Accommodation Payment (DAP)
  • Paid as a lump sum and/or daily payment.
  • Lump sum fully refundable.
  • Fixed at entry based on set rate.
  • Maximum lump sum $550,000 (unless additional approval).
  • Paid as a lump sum and/or daily fee.
  • 2% deducted from the lump sum deposit for 5 years with the rest remaining refundable.
  • Indexed to CPI after entry.
  • Maximum lump sum $750,000 (unless additional approval). Note this change occurs from 1 January 2025.

Basic Daily Fee

  • Paid by all residents.
  • 85% of the full single rate of Age Pension.
  • Paid by all residents.
  • 85% of the full single rate of Age Pension.

Means Tested Fee to be replaced by the Non-Clinical Care Contribution

  • Calculated based on income and assets.
  • Annual and lifetime caps apply ($34,174 and $82,018).
  • Calculated based on income and assets.
  • $130,000 indexed lifetime cap applies or is limited to 4 years in residential care – whichever is reached first.

Hotelling Supplement

  • Government covers the full cost of the Hotelling Supplement for each resident.
  • Up to $11.24 per day.

Extra Services Fee to be replaced by Higher Everyday Living Fee

  • Fees for extra services are agreed between the resident and provider.
  • Fees for extra services are agreed upon between the resident and provider.
  • The fee is subject to regular review and indexation.

A no worse off principle will apply to everyone in residential aged care on 30 June 2025, such that existing residents will have their current arrangements maintained until they leave care. The new arrangements for means testing will only apply to new entrants to residential aged care from 1 July 2025. (1)

With the New Aged Care Act set to take effect soon, understanding these changes—and how they may affect you or your loved ones—is the first step to making informed decisions and planning ahead.

If you’d like to discuss how these reforms may impact your situation, reach out to the Ulton Wealth Management team today.


Source

(1) Australian Government Department of Health and Aged Care: Response to the Aged Care Taskforce - Residential Care Contributions https://www.health.gov.au/sites/default/files/2024-09/response-to-the-aged-care-taskforce-residential-care-contributions.pdf

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