Preamble
Residential Aged Care (aka “nursing homes”) fees are governed by Commonwealth law (Aged Care Act 2024).
Residents pay these room fees through:
· Refundable Accommodation Deposit (“RAD”)
A lump sum payment that is refunded upon the resident permanent departure (typically in cases of death).
Refund of the RAD is due:
within 14 days of permanent departure; or
within 14 days after probate/Letter of Administration is produced if the resident dies (interest applies if late).
OR
· Daily Accommodation Payment (“DAP”)
The daily alternative to paying a RAD.
OR
· A mixture of both.
The Change Effective from 1 January 2025
Nursing home providers used to charge a limit of $550,000 without special approval. If they wanted to charge above this cap, they would have needed to obtain approval from the Independent Health and Aged Care Pricing Authority (“IHACPA”).
From 1 January 2025, the limit has increased to $750,000 without special approval.
The Change Effective from 1 November 2025
For residents entering an aged care facility from 1 November 2025, providers must deduct 2% per annum from the residents’ RADs for up to 5 years (max 10%). The retained amounts will not be refunded.
The rationale for allowing providers to keep the retained amounts is to help them continue to provide high quality residential aged care, as well as support improvements and further investment.
For those who were in a nursing home before 1 November 2025, they will be no worse off and the new deduction rules will not apply to them.
Example Scenario 1
Facts
· It is February 2026.
· A resident wants to move into a room with a price of $600,000.
· They sell their home and pay the full amount as a RAD.
· They stay for 4 years before dying.
Calculation of how much of the RAD is refunded
1. Provider’s retention amount calculated at 2% per annum:
2% × $600,000 × 4 years = $48,000 (non‑refundable).
2. RAD – retention amount:
$600,000 – $48,000 = $552,000 refunded RAD balance.
Example Scenario 2
Facts
· It is February 2026.
· A resident wants to move into a room with a price of $600,000.
· They pay:
$350,000 as a RAD and
cover the unpaid $250,000 via DAP.
· They stay for 4 years before dying.
Calculation
1. First, we need to calculate the DAP , using the government’s Maximum Permissible Interest Rate (“MPIR”) as at the date of entry.
The MPIR changes and is published on the Australian Government Department of Health, Disability and Ageing website.
DAP = (Unpaid RAD x MPIR) x 4 (years)
At the moment, the MPIR is 7.65%.
Therefore, the equation is:
($250,000 x 7.65%) x 4 = $76,500 (non-refundable).
2. Next, we calculate the provider’s retention amount:
2% × $350,000 × 4 years = $28,000 (non‑refundable).
3. Refundable amount is RAD – retention amount
$350,000 – $28,000 = $322,000 refunded RAD balance.
4. Many agreements allow for the DAP to be deducted from the RAD.
Refunded RAD balance – DAP owed
$322,000 – $76,500 = $245,500 returned to the estate.
Keep in mind
This new 2% provider retention rule applies only to nursing homes; it does not apply to retirement villages which are governed by State legislation (Retirement Villages Act 1986).
Typically, retirement villages operate by contract which charge a Deferred Management Fee (“DMF”) that accrues each year to a cap. This is often between 20–36% depending on the size of the resident’s ingoing contribution.
The retirement village also has a longer timeframe to return the resident’s ingoing contribution: 12 months.
What does this mean for you?
If you are considering your Will, you should assume that up to 10% of the RAD won’t be returned into your Estate if you stay in the nursing home for at least 5 years. This should be taken into account when thinking about specific bequests.
If you are going through a family law property settlement, the RAD deduction will therefore reduce the asset pool available for division.
Contact our team at the Tonkin Legal Group to book an appointment if you are considering your Will or going through a Family Law property settlement. We have been a trusted part of the community, providing reliable legal guidance for over 60 years. Give our friendly team a call on 9435 9044 or send us an email at reception@tonkinlaw.com.