Introduction to the Refundable Accommodation Deposit (RAD)

When a loved one transitions into aged care, it can be an emotionally complex and financially challenging time. One of the most important decisions that families face is how to fund a loved one’s accommodation within an aged care facility. Unless the resident qualifies as a low means, where government support contributes to accommodation costs, the price of the room is set by the aged care provider.

There are three primary payment options available:

• Refundable Accommodation Deposit (RAD): A lump sum payment that is fully refundable when the resident leaves the facility.
• Daily Accommodation Payment (DAP): A daily interest-based payment calculated on any unpaid RAD amount.
• Combination of RAD and DAP: A flexible approach that allows part payment upfront and the remainder via daily payments.

Importantly, the RAD is guaranteed by the Australian Government, offering peace of mind regarding its security. If the RAD is not paid in full, the unpaid portion accrues interest at the Maximum Permissible Interest Rate (MPIR), which is fixed at the time of entry into care. For residents entering between July and September 2025, the MPIR is 7.78% per annum.

Choosing between RAD, DAP, or a combination involves several considerations. Everyone’s financial situation is unique, and priorities, whether preserving capital for estate planning or ensuring liquidity, can vary significantly. These decisions are often made under emotional strain, adding to their complexity.

One of the most significant financial decisions is whether to retain or sell the former home. This choice carries multiple implications:

• Retaining the home may offer favourable treatment in means-tested care fee assessments. Depending on who resides in the property, it may be exempt or assessed at a capped value (currently $206,663 per person). For age pension purposes, the home remains exempt while a spouse lives there, or for up to two years if vacant.
• Renting the home introduces assessable income for both aged care and pension calculations and may also incur state land tax depending on jurisdiction.
• Borrowing funds, whether from family, financial institutions, or through shared ownership, can have varied impacts on assessments and entitlements.
• Selling the home removes its favourable treatment. The full sale proceeds become assessable, potentially increasing aged care fees and affecting pension eligibility. While the RAD itself is exempt from pension assessments, any remaining sale proceeds are not.

It’s essential to evaluate how these decisions affect both current cash flow and long-term estate planning. For example, when a resident passes away, the RAD is refunded to their estate, which may be a key consideration for beneficiaries.

Given the intricacies involved, engaging with a qualified aged care financial adviser can provide clarity, confidence, and tailored guidance during what is often a deeply emotional time.

How we help

Understanding how to pay for aged care accommodation, whether through a RAD, DAP, or a combination, can be daunting, especially when decisions are made under emotional pressure. With interest rates, government guarantees, and personal financial priorities all in play, it’s easy to feel overwhelmed.

If you have any questions or need guidance on any aspect of the aged care finance journey, please do not hesitate to get in touch. With a specialist division of financial advisers who are accredited in aged care advice, we have a team that can talk you through the various options and explain the various financial considerations. Our team can also connect you with trusted organisations who can help guide you through the care choices that best align to your unique care situation. Learn more about our accredited aged care financial advisers.

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