RAD or DAP: how paying for an aged care room works

Three ways to pay for the same room

Before moving in, everyone agrees a room price with the home in writing. The price can't be more than the price the home publishes for that room on My Aged Care (the Australian Government's aged care service, 1800 200 422), and it can be negotiated down. A person who is not on low means then pays that price in one of three ways:

People with low means don't pay the room price. They pay an accommodation contribution set by Services Australia, as a lump sum (a refundable accommodation contribution, RAC), a daily amount (a daily accommodation contribution, DAC) or a mix, and the government pays the rest. The rest of this guide is about the RAD and DAP, but most of the rules (retention, drawing down, refunds) work the same way for a RAC.

Source: My Aged Care: understanding aged care home accommodation costs; Department of Health, Disability and Ageing: accommodation payments and contributions

How the daily payment is worked out

The formula is set by the government:

DAP a day = agreed room price × MPIR ÷ 365

The MPIR (maximum permissible interest rate) is a government-set rate, not an interest charge. It is 8.51% for room prices agreed from 1 October 2026. The table shows what that means for a range of room prices, and what the same room would have cost a day if the price had been agreed in the previous quarter.

A combination, worked through

Take a room price of $552,458 and suppose $200,000 of it is paid as a lump sum. The daily payment is worked out on the part not paid:

1. Unpaid part of the price: $552,458 − $200,000 = $352,458
2. DAP: $352,458 × 8.51% ÷ 365 = $82.18 a day

Paying more of the price as a lump sum later lowers the daily payment again; the agreed room price itself does not change. This example is an illustration of the arithmetic, not a suggested split.

Source: My Aged Care: understanding aged care home accommodation costs; Department of Health, Disability and Ageing: accommodation payments and contributions

The interest rate, and what moves the DAP

The government resets the MPIR every quarter (1 January, 1 April, 1 July and 1 October). The rate that applies to a resident is the one current on the day their room price is agreed, and it stays fixed while they remain in that room, even if the MPIR changes later. A voluntary move to a different room means a new price and the MPIR current at that time.

The MPIR has risen every quarter since late 2025, so the same room price agreed now converts to $13.62 a day more than the same price agreed between 1 October and 31 December 2025. These are rates, not fees: the dollar amount depends on the room price.

DAP indexation

For people who moved in from 1 November 2025 (and some others who re-entered care after a break of more than 28 days), the home must index the daily payment on 20 March and 20 September each year, using an index number the Department publishes in line with the Consumer Price Index. Lump sums are not indexed, and the agreed room price does not change. People on the arrangements that applied before 1 November 2025 don't have their DAP indexed.

Source: schedules of fees and charges for residential care (MPIR by quarter); Department of Health, Disability and Ageing: DAP indexation

RAD retention: what the home keeps

For anyone who first entered residential care from 1 November 2025 and pays some or all of the room as a lump sum, the home must deduct a retention amount from the balance:

• The rate is 2% a year, set in legislation, worked out each day on the balance held.
• It is deducted at least once every three months, and no more than once a month.
• It stops after 5 years, counted from the day the deposit was first paid.
• Retained amounts are not refunded. The home can't ask for them to be topped up, and they don't change the daily payment.
• Because each deduction lowers the balance, the next one is slightly smaller.

Retention does not apply to people who entered care before 1 November 2025 and stay on those arrangements. It does apply to people on the older fee arrangements who enter residential care for the first time after 31 October 2025.

Source: Department of Health, Disability and Ageing: RAD and RAC retention

When the choice has to be made

• Before moving in: the room price is agreed in writing as part of the accommodation agreement, which, for people moving in from 1 November 2025, must be in place before entry. A home can't ask anyone to choose a payment method, or to pay accommodation costs, before they move in.
• After moving in (from 1 November 2025): there is no deadline. Daily payments apply until a lump sum is paid. A lump sum can be paid in full or in part, and topped up, at any time once the means assessment is finalised (or "means not disclosed" status is set).
• Before the means assessment is finished, the home can charge up to the agreed room price as a daily payment. If the person turns out to have low means, the home must refund what was overpaid.
• Entered care before 1 November 2025: residents had to choose within 28 days of entering, had up to 6 months to pay a lump sum, and paid daily in the meantime.

Daily payments can be charged up to a month in advance. If they are more than a month overdue, the home can charge interest at a rate set out in the agreement, no higher than the MPIR.

Source: Department of Health, Disability and Ageing: managing accommodation costs; accommodation agreements; My Aged Care: understanding aged care home accommodation costs

Paying the DAP out of the RAD

If part of the room is paid as a lump sum, the resident can ask the home to take the remaining daily payment out of that lump sum instead of paying it separately. If asked, the home must do this, and the accommodation agreement must say so.

• The lump sum balance goes down over time, so the home must recalculate the daily payment regularly, and it gets larger.
• The home can ask the resident to keep up the agreed accommodation payment for these deductions, by paying a higher daily payment, topping up the lump sum, or both. It can't ask for this for retention deductions.
• Other fees, such as the basic daily fee, the hotelling contribution or the non-clinical care contribution, can also be deducted from the lump sum, but only if the home agrees.
• Deductions are not refunded when the person leaves.
• When the balance falls, tell Services Australia, because the lump sum counts as an asset in the means assessment. A home must also update the accommodation agreement when a resident asks to deduct fees from their deposit.

Source: My Aged Care: understanding aged care home accommodation costs; Department of Health, Disability and Ageing: accommodation payments and contributions

Getting the lump sum back

The balance of a RAD (or RAC) is refunded when the person permanently leaves the home: the amount paid, less retention and any deductions they agreed to.

• No interest is earned on the lump sum while the person is in care. During the refund period the home pays interest at the base interest rate, and at the higher MPIR if it refunds late.
• The home doesn't have to refund part of a lump sum while the person is still living there, although it may agree to.
• If a provider becomes insolvent and can't refund, the Australian Government repays the balance, including interest due since the person left, under a scheme that covers every resident of a government-subsidised home who paid a lump sum.
• For a problem with a refund, raise it with the manager first, then with the Aged Care Quality and Safety Commission.

Source: My Aged Care: aged care home accommodation refunds; understanding aged care home accommodation costs

Effects on other fees and the pension

How the room is paid can change other figures. These are the rules; how they play out for a particular person is what an adviser works through.

• Aged care means test: a lump sum counts as an asset, even if a family member paid it. So paying one does not lower the asset tested amount, and it can change the hotelling contribution, the non-clinical care contribution or an accommodation contribution. A lump sum is not a financial asset, so no income is deemed on it.
• Age Pension: a refundable lump sum is exempt from the Age Pension assets test. See aged care and the Age Pension.
• Couples: half of a couple's combined income and assets is assessed for each partner, so one partner's lump sum can change the other partner's fees.
• Low means status is fixed at entry. A lump sum paid later, including one paid by family, doesn't change it, although it can change the contributions.
• Reporting: paying a lump sum, and a balance falling through deductions, are changes to report to Services Australia within 28 days.
• Family money: the law doesn't stop family paying some or all of the room, but a lump sum they pay is counted as the resident's asset. My Aged Care also suggests legal advice before entering a loan agreement with a relative or friend.

Source: My Aged Care: understanding aged care home accommodation costs; changes while in an aged care home; Department of Health, Disability and Ageing: fee scenarios (worked examples)

Questions to take to an adviser

The payment decision depends on the person's whole financial position and usually affects what happens to their savings and investments, so it belongs with someone licensed to advise. Services Australia's Financial Information Service is free on 132 300 (say "Financial Information Service"); a licensed financial adviser who specialises in aged care is the other route. Questions worth taking:

• How would a lump sum, a daily payment, or a particular mix change the hotelling and non-clinical care contributions, and the Age Pension?
• Where would the money for a lump sum come from, and what happens to the assessment of whatever is left?
• If there is a partner, how does each option change their income, their fees, and their position if they later need care too?
• How do retention and twice-yearly DAP indexation play out over a short stay and over a long one?
• If daily payments are drawn from a part lump sum, how long would the balance last, and what then?
• How much needs to stay available for the basic daily fee, the contributions and any optional extras?
• Are there tax or estate questions for a registered tax agent or a lawyer?

Take the fee advice letter from Services Australia, the home's accommodation agreement (it shows the agreed room price, and the Department recommends homes also show the MPIR used), and recent statements for income and assets.

Source: Services Australia: Financial Information Service; My Aged Care: understanding aged care home accommodation costs