RAD vs DAP: Understanding your aged care payment options

Moving a parent or partner into residential aged care is rarely a calm decision. It usually follows a fall, a hospital stay, or a slow realisation that home is no longer safe.

On top of the emotional weight, families are handed paperwork and told to choose between a Refundable Accommodation Deposit (RAD) and a Daily Accommodation Payment (DAP), or a combination of both.

Most people have never heard of either term before the week they need to sign. This guide walks through how RAD vs DAP works, how each option changes your aged care accommodation costs, and how the decision flows through to your pension and nursing home fees. It also covers what changes for low means residents, who receive government support to pay for their accommodation and instead of RAD or DAP, are assessed on how much to pay towards a Daily Accommodation Contribution (DAC) with the option to pay a Refundable Accommodation Contribution (RAC).

Who actually has to pay an accommodation cost?

Not every resident pays the full accommodation price set by the facility. On the day someone enters permanent residential care, they are classified as either a RAD payer (sometimes called a “market payer”) or a low means resident, based on an income and assets assessment completed by Services Australia.

That classification sticks. If someone is assessed as a RAD payer and later runs out of money, they stay a RAD payer. If someone is assessed as low means and later receives a windfall, they stay low means. There are only two exceptions: if they voluntarily move to another facility, or if they leave residential care for 28 days or more.

RAD payers fund the full room price set by the provider. Low means residents have their accommodation amount subsidised by the Commonwealth government and pay a capped contribution instead. We cover the low means rules in detail further down.

What is a Refundable Accommodation Deposit (RAD)?

A RAD is a lump sum you pay to the aged care provider as an accommodation payment for a permanent residential place.

It works a bit like a bond. The provider holds the money, is allowed to use it for approved purposes such as capital works and must return the full amount (less agreed fees and retention) when the resident leaves care or passes away.

The residents do not earn interest on the RAD while it sits with the provider, but the balance does not shrink either for residents who entered care before November 2025. For residents entering care after November 2025, the RAD balance has a 2% a year retention which is limited to 5 years (10%).

RAD amounts vary significantly depending on the facility, location, and room type. In metropolitan areas, the advertised RAD median price sits at $585,000, with premium rooms priced significantly higher. In rural areas, the median RAD is $400,000 – $450,000. i

The maximum accommodation threshold can be exceeded subject to approval from the Independent Health and Aged Care Pricing Authority.  From 1 July 2025, it is $758,627 and is indexed on 1 July each year.

One feature that surprises a lot of families: once the RAD is paid, that money is no longer counted for Age Pension purposes. That single fact is why the decision is rarely just about cash flow.

What is a Daily Accommodation Payment (DAP)?

A DAP is the same accommodation cost as a RAD but paid as an ongoing daily fee instead of a lump sum. Rather than hand over several hundred thousand dollars upfront, you pay a set amount each day for as long as the resident is in care.

The DAP is calculated by applying the Maximum Permissible Interest Rate (MPIR) to the unpaid RAD amount, then dividing by 365. For residents who entered care from November 2025, the DAP increases due to indexation applied in March and September.

The easiest way to think about the MPIR is the interest you would pay on the RAD if you were borrowing it from the provider. The rate is set by the government each quarter. Once the interest rate is set, it will remain unchanged unless there is a move.

As an example, on a $500,000 room priced at an MPIR of 7.96%, the DAP could work out to $109.04 per day. Unlike a RAD, DAP payments are not refundable. They are a running cost, similar to rent.

Equivalent daily payments at common RAD prices

The daily figures above are indicative and move with the MPIR. Over a 12-month stay, the annual DAP can easily equate to tens of thousands of dollars, so providers treat DAP arrears seriously.

RAD vs DAP: a side-by-side comparison

As a general rule, paying the full RAD tends to suit families with strong asset positions who want to lift pension entitlements and lock in a known savings. A full DAP can work where capital is limited or needs to stay invested. A combination is often the most practical middle ground.

The combination option: paying part RAD and part DAP

Families are not locked into an all-or-nothing choice. You can pay a partial RAD and then pay a reduced DAP on the remaining balance. For example, if the room is priced at a $500,000 RAD, you might choose to pay $300,000 as a lump sum and cover a DAP on the outstanding $200,000. The daily fee shrinks in line with the portion you have already paid.

Often, this is the most strategic option because it balances three things at once: liquidity for other expenses, pension impact through reduced assessable assets, and a smaller ongoing daily cost. It also leaves headroom to top up the RAD later if circumstances change.

The two-phase strategy when the family home has not sold

Many families plan to fund the RAD from the sale of the family home. In soft property markets, or when a sale is emotionally difficult, forcing that sale in the first month of care is rarely the best move. A two-phase strategy buys time.

The idea is simple. In phase one, pay a small portion of the RAD as a lump sum and have the DAP drawn down from it. Even 10% of the RAD paid up front, with the DAP deducted from that balance, typically covers accommodation fees for about a year at current MPIR settings (7.96%). That gives the family room to breathe.

Example: 10% RAD paid up front, DAP (7.96%) and retention deducted from the balance.

In phase two, there is time to weigh up the longer-term options without duress. These typically include:

• Making an additional RAD payment if a reasonable offer is accepted and the family home is sold
• Allocating rental income towards the DAP payments if the family elects to retain and rent the home
• Using equity release strategies that can provide regular cashflow or lump sum amounts to fund longer-term costs
• Working through a private family arrangement to fund the resident’s care while keeping the outcome equitable for all family members
• Reviewing whether the home qualifies as an “unrealisable asset” and how that interacts with the financial hardship provisions

Used well, the two-phase approach protects both the resident and the aged care provider. The family avoids a fire sale, and the provider avoids the financial consequences of admitting someone who may later struggle to pay.

Flexible timing: you can change your mind

Residents used to have only 28 days after moving into care to advise the provider how they want to pay. Now that restriction has been removed.The decision can still be shaped by professional advice. The choice made stands and the door is not closed forever. However, once a RAD is paid, generally it will not be refunded while the resident is still using the accommodation.

A resident who chose 100% DAP can pay some or all of the RAD at any later date, which reduces or eliminates the DAP going forward. A resident who part-paid a RAD can top it up whenever funds become available, for example after the family home settles. Switching between payment methods is generally allowed subject to the resident agreement and can have flow-on effects to the pension, and cash flow.

How your choice affects the Age Pension

The RAD vs DAP decision flows directly into Centrelink’s assets test and income test.

A RAD is treated as an exempt asset the moment it lands with the provider (once Centrelink is notified), which reduces assessable assets and may lift the fortnightly Age Pension.

If you keep those same funds invested and pay a DAP instead, the capital remains assessable and the deemed income on it continues to count against the income test.

A simple worked example: if Margaret has $800,000 in assessable assets and pays a $400,000 RAD, her assessable assets drop to $400,000 and her deemed income reduces. Depending on her other circumstances, that would increase her fortnightly pension at the same time.

The exact uplift depends on her relationship status, homeownership, and the current pension thresholds, so figures should always be modelled case by case.

The other fees that sit alongside the RAD or DAP

The accommodation payment is not the only cost. Most residents will also pay:

• The Basic Daily Care Fee, set at 85% of the single rate of the basic Age Pension and payable by every resident
• Fees that are means tested, where income and assets are high enough
• Higher Everyday Living Fees, depending on the facility, covering lifestyle extras such as higher-end meals, entertainment and room features

When comparing rooms and facilities, families should always ask the provider for a full fee estimate that includes Higher everyday living fees , not just the RAD price.

Low means residents: Daily Accommodation Contribution (DAC) and Refundable Accommodation Contribution (RAC)

Not every resident pays the full accommodation price quoted by a facility. If someone’s income and assets are below the thresholds set by Services Australia on the day they enter care, they are classified as a low means resident and their accommodation is partly or fully subsidised by the Commonwealth Government.

A low means resident can be Fully Supported, where the government covers the entire accommodation cost, or Partially Supported, where the resident pays a capped contribution and the government covers the rest. The classification is set at entry and the contribution is reviewed each month by Services Australia . If circumstances change, a fully supported resident can be reassessed as partially supported, and vice versa.

The daily contribution a partially supported low means resident pays is called the Daily Accommodation Contribution (DAC). It works like a DAP, but it is capped at the facility’s maximum accommodation supplement rather than the full room price. Low means residents also cannot “top up” the DAC to upgrade to a more expensive room. The capped contribution is all the facility can charge.

The Refundable Accommodation Contribution (RAC) is the lump sum equivalent of the DAC. Just as a RAD payer can choose between a lump sum and a daily fee, a low means resident can convert their DAC to a RAC in part or in full, at any time. The RAC is calculated by reversing the DAP formula:

The MPIR that applies to a low means resident is fixed on their date of entry, using the same rules as RAD payers. Unless the resident voluntarily moves facilities or leaves care for 28 days or more, the rate does not move with subsequent updates.

A common trigger for reassessment is a change in the status of the former home. If a protected person, for example a spouse or carer, had been living there and later moves out, the home stops being exempt from the aged care assets test and is assessed up to the capped value. A fully supported resident can become partially supported overnight as a result, and may also begin paying other fees that are Means Tested.

The RAC and DAC sit on the same spectrum as the RAD and DAP discussed above, and the same combination and switching logic applies. Low means classification is the key difference. Families who are unsure which side of the line they fall on should get an estimate before committing to a room, because the cap changes the math significantly.

Is the RAD fully refundable? How the new retention rules work

The refund rules for a RAD are one of the more reassuring parts of the system, but they did change in late 2025 and many families are still working through what that means.

Before 1 November 2025, a RAD was 100% refundable when the resident left care or passed away, unless fees had been agreed to be deducted from it. Residents who were already in care before that date remain under the old rules, even if they later top up their RAD.

Under the current rules, for residents who entered care from 1 November 2025, the RAD balance is reduced by 2% of the RAD paid each year for the first five years after the initial payment. This is called the RAD retention amount. After five years of retention, the deductions stop and the remaining balance is fully refundable.

As long as other ongoing fees are paid in full each month, only the RAD retention amount is deducted. Any fees the resident has agreed can be drawn from the RAD (such as a DAP drawn down against it) will also reduce the balance returned.

Worked example

Danny moves into residential aged care with a room price of $700,000 and pays the full amount as a RAD. All of his other ongoing care fees are paid from his bank account. When Danny passes away one year after entering care, $686,000 is refunded to his estate, after a 2% retention of $14,000 is deducted. The actual figure is usually slightly betterin practice, because providers invoice monthly and calculate the retention on a pro rata basis each month, with prior retention amounts reducing the balance each calculation.

When is the RAD refunded?

The provider must refund the RAD balance (less any agreed deductions) when the resident leaves care or passes away.

If the resident has passed away, the executor may need to obtain probate or letters of administration and provide a copy to the provider. Once the provider receives those documents, the refund must be paid within 14 days. Some providers refund earlier without insisting on probate, so it is worth asking early about their specific requirements. Interest accrues on the balance at the base rate until 14 days after probate is received, and at the maximum permissible rate after that point if the refund is delayed.

The refund forms part of the estate and is distributed under the will, which is why the RAD decision should sit alongside estate planning and any enduring power of attorney review.

A common worry is what happens if the provider goes into liquidation. Under the Aged Care Act, refundable deposits are backed by an Australian Government guarantee, so the RAD balance is protected even in that scenario.

The family home: retain, rent, borrow or sell

For most families, the RAD decision cannot be separated from what happens to the former home. Each option has a different knock-on effect.

• Retain the home. If a protected person, typically a spouse, continues to live there, the home stays exempt from the aged care assets test. Unless there is a spouse in the house, it only stays exempt from the Age Pension for up to two years, then becomes assessable. For aged care, a vacant home is assessed up to the capped home value of $214,884 per person.
• Rent the home. Net rental income becomes assessable under both the aged care and pension income tests, which can push up fees and reduce pension. Renting may also trigger state land tax depending on the jurisdiction.
• Borrow funds. Families sometimes borrow from relatives, financial institutions or through shared ownership arrangements. Each structure carries different assessment implications, and some can affect the resident’s entitlements in ways that are not immediately obvious.
• Sell the home. Selling removes the favourable treatment. The net proceeds become assessable. Applying some of those proceeds to a RAD can reduce the overall assessable position, because the RAD itself is exempt from the pension assets test, but any leftover proceeds are not.

Residents with more complex structures, such as a family trust, an SMSF or a private company, have a further layer of considerations before the RAD vs DAP decision can be modelled properly.

Special situations: protected persons, minimum assets and financial hardship

A few edge cases come up often enough that they deserve a short explanation.

• Who counts as a protected person? A spouse, a dependent child, a carer who has lived in the home for at least two years and is eligible for an income support payment, or a close who also is eligible for an income support payment and has lived in the home for at least five years. If a protected person lives in the home, it is exempt for the aged care assets test while they remain there and receive an income support payment.
• Room upgrades for low means residents. A low means resident cannot pay extra to upgrade to a more expensive room. The capped contribution is the maximum the provider can charge, regardless of the advertised RAD on the room. Family members cannot top up for an upgrade either.
• Financial hardship. A resident who genuinely cannot afford their accommodation costs can apply for financial hardship assistance. The resident makes the application, the provider receives the supplement. The process is not straightforward and professional help is strongly recommended.
• Worked scenario. Grace jointly owns a unit valued at $390,000 with her brother Tony, who lives elsewhere. She receives the full Age Pension, has $10,000 in savings and $5,000 in personal assets. Her assessable assets are $210,000 (50% of the home plus savings and personal items), which sits below the low means asset threshold. Grace qualifies as a low means resident. Grace’s share of the unit is not exempted because there isn’t a protected person, so it is not subject to the home cap and is assessed by Services Australia as an assessable asset. However, under Hardship, it’s unreasonable to expect another person (Tony) to sell their share of the property so it can be classified as an unrealisable asset and Grace’s fees reduce to be covered by the pension.

When to get professional advice

The RAD vs DAP choice is not an isolated decision. It interacts with pension eligibility, the , estate planning, home ownership, and the family’s broader investment strategy.

For many families, it is also the largest single financial decision they will make in a short window.

After a resident enters care, families used to have 28 days to nominate how they will pay the accommodation cost. Even now that the time limit has been removed, it’s still hard to make decisions when you are also dealing with a move, medical appointments, and the emotions of a major life transition.

Alteris specialises in modelling the full picture, including the pension impact, cash flow, fees, and estate outcomes, before a family commits. If you want to understand how the options stack up for your situation, book a time to discuss your options with us.

Speak to an Alteris aged care specialist. Book a complimentary aged care consultation to understand which payment structure is right for your family. Book a consultation →

Frequently asked questions

What does RAD stand for?

RAD stands for Refundable Accommodation Deposit. It is the lump sum accommodation price set by an aged care facility for a permanent residential room, paid to the provider when a resident enters care and refunded when they leave or pass away, subject to the retention rules introduced in November 2025.

What does DAP stand for?

DAP stands for Daily Accommodation Payment. It is the daily alternative to the RAD, calculated using the Maximum Permissible Interest Rate. The DAP is not refundable. It is a running cost, similar to rent.

What does RAC stand for?

RAC stands for Refundable Accommodation Contribution. It is the low means equivalent of a RAD. A low means resident can elect to pay their capped accommodation contribution as a lump sum RAC rather than a daily DAC, or as a combination of the two.

What does DAC stand for?

DAC stands for Daily Accommodation Contribution. It is the daily contribution a partially supported low means resident pays towards their accommodation calculated by the means test and capped at the facility’s maximum accommodation supplement.

Is it better to pay a RAD or a DAP?

It depends on the family’s asset position, cash flow needs, pension eligibility and plans for the former home. A full RAD can lift pension entitlements and lock in known savings. A full DAP preserves capital. A combination often balances those trade-offs best. This is a decision where professional modelling tends to pay for itself.

Can I change from DAP to RAD after I’ve started paying?

Yes. Residents can convert from DAP to RAD once the fee assessment letter has been issued. Switching your payment method can have flow-on effects to your pension, fees, and cash flow, so it is worth getting advice before you make the change to ensure you keep enough cash available. Generally speaking, you will not be able to switch from RAD back to DAP unless the provider agrees.

Is the RAD covered by the government if the aged care provider goes into liquidation?

Yes. Under the Aged Care Act, the Australian Government guarantees refundable accommodation deposits. If an approved provider cannot meet its obligations, the government steps in to ensure the RAD balance is refunded to the resident or their estate.

Is the RAD fully refundable?

For residents who entered care before 1 November 2025, yes, the RAD is refundable in full (less any fees the resident agreed could be deducted). For residents entering care from 1 November 2025, a 2% retention applies each year for the first five years. After that, the balance is fully refundable.

How long does the average person stay in residential aged care?

The average length of stay in Australian residential aged care is approximately 21 months, iii although this varies widely depending on age at entry and health. Expected length of stay is a useful input when weighing RAD vs DAP, because a longer stay increases the total amount paid under a DAP.

Does paying a RAD affect my family home’s exempt status?

No, the RAD does not have any impact on how the home is assessed. It depends on who is still living in the home. If a protected person such as a spouse remains in the property, the home continues to be exempt from the assets test. If there is no protected person, the home is assessable up to a capped value. If the property is sold, the proceeds are assessed but using sale proceeds to pay a RAD can reduce the overall assessable position. This is a complex area where individual advice is essential.

Can family members contribute to upgrade a low means resident’s room?

No. Once a resident is assessed as low means, they remain low means. A low means resident’s contribution is capped at the facility’s maximum accommodation supplement, and family members cannot pay extra to upgrade to a more expensive room. That restriction applies regardless of the RAD price advertised for the room. However, to ensure a resident is assessed as having the means to pay market rates of accommodation, this requires advice particularly given the RAD balance becomes an estate asset, regardless of who provided the funds.

Sources

i: https://www.stewartbrown.com.au/aged-care-articles/stewartbrown-aged-care-financial-performance-survey-analysis-report-june-2025

ii: https://www.health.gov.au/our-work/residential-aged-care/charging/maximum-accommodation-payment-amounts?language=en

iii: https://www.gen-agedcaredata.gov.au/topics/people-leaving-aged-care

This article is general information only and does not take into account your personal circumstances. Aged care, Centrelink, and tax rules change frequently, and the strategies discussed here may not be appropriate for every family. You should seek personal advice from a qualified financial adviser, accountant, and solicitor before acting on the information contained in this article. Figures referenced in this article are current as at the date of publication and may be subject to change. Alteris Financial Group is licensed to provide personal financial advice in Australia and works with families across the country on aged care, retirement, and intergenerational wealth strategies.

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