RAD vs DAP: How to Pay for Aged Care Accommodation and What the 2025 Changes Mean

First: do you pay the room price at all?

Only residents whose means tested amount is at or above the maximum accommodation supplement ($72.30 a day) pay the room price they agree with the home. Low-means residents pay a government-set contribution instead and this article does not apply to them in the same way. The means test guide and the fees calculator show which side of the line you are on.

The three ways to pay

	RAD (lump sum)	DAP (daily)	Combination
What you pay	The agreed room price, once	Unpaid amount × MPIR ÷ 365, every day	Some lump sum, DAP on the rest
Refunded?	Yes, less retention and agreed deductions	No	RAD part only
Changes over time	2% a year retained for up to 5 years	Indexed on 20 March and 20 September	Both
Pension assets test	RAD is exempt	Cash you keep is counted	Mixed
Aged care means test	RAD counts as an asset	Cash you keep counts as an asset and is deemed as income	Mixed

How a DAP is calculated

The government sets a maximum permissible interest rate (MPIR) each quarter; it is 8.43% for 1 July to 30 September 2026. Your DAP is the unpaid room price multiplied by the MPIR that applied on the day you agreed the price, divided by 365.

Room price paid as DAP	Daily payment	Per year
$300,000	$69.29	$25,290
$450,000	$103.93	$37,935
$600,000	$138.58	$50,580
$789,686 (maximum without approval)	$182.39	$66,571

Two things to notice. The MPIR is a good deal higher than most people earn on the same money in a term deposit, which is the core argument for paying a RAD if you can. And for residents entering from 1 November 2025, the DAP is indexed twice a year - it rises with the DAP index published in the schedule, so a DAP agreed today will cost more in two years.

The new RAD retention

For anyone who first enters residential care on or after 1 November 2025 and pays any part of their room as a RAD, the provider retains 2% of the RAD balance each year for up to five years (a maximum of roughly 10% overall). The amount is deducted from the balance regularly and is not refunded. On a $500,000 RAD that is about $10,000 in the first year and up to about $48,000 over five years (slightly less than $50,000 because the balance falls as retention is taken). It is, in effect, the price of the RAD being refundable and pension-exempt.

The retention is fixed by law; providers cannot charge more or waive it. They also cannot ask you to top up the RAD to replace retained amounts, although they can ask you to top up for other deductions such as DAPs you chose to draw from the balance.

What a RAD does to your other fees

Paying a RAD moves money from a deemed financial asset into a non-deemed one, which lowers your assessable income for the aged care means test. But the RAD itself counts as an asset in that test, so it does not reduce your asset tested amount. The net effect is usually a modest reduction in the hotelling and non-clinical contributions for people near the thresholds, and none for people well above them. The RAD is exempt from the Centrelink pension assets test, so a part pensioner who pays a RAD may see their pension increase - often the most valuable effect of all.

What a DAP does

Keeping your money means it continues to be counted and deemed for both the pension and the aged care means test, and the DAP comes out of after-tax cash flow. Where a DAP wins is flexibility: if the resident's stay is likely to be short, if the family home is being sold and the timing is uncertain, or if the money is needed for a spouse still at home. Many families pay a DAP for the first few months while a home is sold, then pay a RAD.

The combination, and drawing fees from the RAD

You can pay any split, and you can increase the RAD at any time after entry. You can also ask the provider to deduct your DAP - and, if the provider agrees, your other fees - from the RAD balance rather than paying them from cash. This preserves cash flow at the cost of a shrinking refund, and as the balance falls the DAP on the unpaid portion rises to keep equivalence. Providers must allow the DAP draw-down if you request it.

Timing and negotiation

• You cannot be asked to choose RAD or DAP before you move in. Until you pay a lump sum you pay a DAP by default.
• Published room prices are maximums. Homes with vacancies negotiate; ask.
• A RAD must leave you with at least the minimum permissible asset level ($64,500); a home cannot take a RAD that leaves you below it.
• Rooms priced above $789,686 need approval from the Independent Health and Aged Care Pricing Authority; the home must show you it.

Get advice for large amounts

For a RAD in the hundreds of thousands, the interaction between the pension, deeming, the aged care means test, the family home and the estate is genuinely complex, and a specialist aged care financial adviser (typically $2,500 to $5,000 for a full plan) usually recovers their fee. Free general help is available from Services Australia's Financial Information Service. Estimate your fees under each option first with the aged care fees calculator, and read residential aged care fees explained for the other three costs.

Figures are from the Schedule of Fees and Charges for Residential Care from 1 July 2026 and the Department of Health, Disability and Ageing fee scenarios, current as at August 2026. Fees, thresholds and caps are indexed on 20 March and 20 September and the MPIR changes quarterly, so check the current schedule before making decisions. This guide is general information, not financial advice.