Aged Care Reform 2025: What Changed Under the New Aged Care Act

The New Aged Care Act at a Glance

The Aged Care Act 2024 came into force on 1 November 2025, replacing the Aged Care Act 1997 that had governed the system for nearly three decades. The reform overhauled how fees are structured, who pays for what, and what rights residents hold against providers.

The single biggest structural change is the separation of clinical care from everything else. Under the old system, a single Means-Tested Care Fee (MTCF) bundled nursing, personal care, and daily living contributions into one calculated amount. Under the new framework, the Australian Government now funds 100% of clinical care — registered nursing, medication management, allied health, palliative care — with zero out-of-pocket cost to any resident, regardless of their financial means.

In exchange, residents who can afford it are now expected to contribute more toward their accommodation and everyday living costs through two new means-tested fees: the Hotelling Contribution and the Non-Clinical Care Contribution (NCCC).

What Changed in the Fee Structure

For anyone entering residential aged care on or after 1 November 2025, the daily fee structure looks like this:

• Basic Daily Fee (BDF) — $66.80/day as of March 2026 (85% of the single basic Age Pension). It is the universal baseline fee, although eligible residents may seek financial hardship assistance. It covers catering, laundry, basic cleaning, and utilities.
• Hotelling Contribution — up to $22.15/day, means-tested. This covers enhanced everyday living services and facility costs above the BDF. Notably, there is no annual or lifetime cap on this contribution.
• Non-Clinical Care Contribution (NCCC) — up to $107.32/day, means-tested. This covers personal care services like bathing, dressing, and mobility assistance. It has a lifetime cap of $137,917.01 or four cumulative years of payments, whichever comes first.
• Accommodation payments — RAD, DAP, or a combination (unchanged in structure, but RADs are now subject to 2% annual retention).

Clinical care — nursing, wound care, medication administration, physiotherapy — is fully government-funded at zero cost to the resident.

The "No Worse Off" Grandfathering Principle

The legislation builds in protections for people who were already navigating the system before the reforms took effect. There are three distinct tracks:

Pre-1 November 2025 residents who were already in permanent residential care continue under the legacy fee arrangements (the old Basic Daily Fee, their negotiated accommodation payment, and the legacy MTCF). They will not be moved to the new Hotelling Contribution or NCCC framework unless they voluntarily opt in using Form AC022 or leave care for more than 28 consecutive days.

Post-1 November 2025 new entrants are assessed entirely under the new system — the split fee structure described above, including the 2% annual RAD retention.

Home Care Package recipients grandfathered under Support at Home are protected by a specific provision. If an individual was receiving a Home Care Package, or was approved and waitlisted on the National Priority System as of 12 September 2024, they retain the right to be assessed under the legacy residential fee rules if they later move into a care home. This applies even if they enter residential care years after the November 2025 transition date.

The 2% RAD Retention Rule

One of the most significant financial changes for families is the RAD retention. Under the old system, the Refundable Accommodation Deposit was exactly that — fully refundable, guaranteed by the government, and returned in full (less any authorised drawdowns) when the resident left care.

Under the new rules, providers are legally required to deduct 2% per annum from the RAD balance. This retention is calculated daily on the reducing balance and capped at five years from the date the deposit was first paid. Providers must deduct the retention at least quarterly but no more than once per month. They cannot ask the resident to top up the RAD or increase the Daily Accommodation Payment to compensate for the declining balance.

For a $500,000 RAD, the first year's retention is roughly $10,000 — and the total over five years is slightly less than 10% of the original deposit because the deduction compounds on the reducing balance.

What the Reforms Mean for Families Making Decisions Now

The practical impact depends heavily on the resident's financial profile:

Full pensioners with a modest home are largely protected. Their means-tested contributions will typically be minimal or zero, and if they qualify as low-means residents, the government funds their accommodation through a daily supplement. The Basic Daily Fee remains the primary out-of-pocket cost.

Part pensioners and self-funded retirees face the most significant financial planning challenge. The new Hotelling Contribution (uncapped) and the NCCC (up to $137,917.01 lifetime) can substantially increase total out-of-pocket costs compared to the old MTCF system, which had a lower lifetime cap of $86,185.23. However, the removal of any out-of-pocket clinical care costs partially offsets this for residents with high nursing needs.

Couples where one partner enters care are treated as "separated due to illness" for pension and means-testing purposes. Each partner receives the single pension rate, and assets are split 50/50 for assessment. This can significantly change the financial equation — the family home remains exempt if the spouse continues living in it, but other assets (superannuation, investments) are divided for means testing.

Key Dates and Thresholds Families Should Track

The March 2026 fee schedule (indexed on 20 March and 20 September each year) sets the current benchmarks:

• Basic Daily Fee: $66.80/day
• Maximum Hotelling Contribution: $22.15/day
• Maximum NCCC: $107.32/day
• NCCC lifetime cap: $137,917.01
• Home exemption cap (for means-testing a retained, vacant home): $214,884.00
• Maximum approved room price before IHACPA approval required: $758,627
• Maximum Permissible Interest Rate (MPIR): 8.43% from 1 July 2026

These thresholds determine whether a resident pays means-tested contributions and at what level. Getting the means assessment right is the single most consequential administrative step — and it begins with Services Australia Forms SA457 or SA485.

For a step-by-step walkthrough of the means assessment process, fee calculations, and the accommodation payment decision (RAD vs DAP vs combination), the Paying for Residential Aged Care guide covers each stage from pre-admission paperwork through to monthly billing reviews.

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