Grandfathered Aged Care Fees Australia: Legacy vs New Fee System Explained

If you're trying to understand your parent's aged care fees in 2026, the first question isn't "how much?" — it's "which system?" The new Aged Care Act (commenced 1 November 2025) created a fundamentally different fee structure, but residents who entered care before that date remain under the old rules. These two systems run in parallel, and confusing which one applies produces wildly inaccurate cost estimates.

Here's how the grandfathering works and what it means for families navigating either track.

The "No Worse Off" Principle

The Aged Care Act 2024 included a grandfathering provision designed to protect existing residents from the new fee framework. The principle is straightforward: anyone who entered permanent residential care on or before 31 October 2025 stays on the pre-reform fee structure for the duration of their stay. They cannot be moved to the new system unless they voluntarily opt in (via Form AC022) or leave care for more than 28 consecutive days.

This same protection extends to people who were receiving a Home Care Package, or who were approved and waitlisted on the National Priority System as of 12 September 2024. If they subsequently transition to residential care — even after 1 November 2025 — their residential fees are calculated under the legacy pre-November 2025 rules.

Legacy System (Pre-1 November 2025 Entry)

Residents under the grandfathered rules pay:

Basic Daily Fee: $66.80 per day (85% of the single basic Age Pension, indexed 20 March and 20 September). Identical in both systems.

Means-Tested Care Fee (MTCF): A single means-tested fee covering both personal care and clinical care costs. The MTCF is based on the resident's income and assets and is subject to two caps:

• Annual cap: $35,910.43 (as of March 2026)
• Lifetime cap: $86,185.23 (as of March 2026)

Once either cap is reached, the resident stops paying the MTCF and the government covers the full cost.

Accommodation payment: RAD or DAP at the negotiated room price. Under the legacy system, the RAD is 100% refundable — there is no 2% annual retention deduction.

No Hotelling Contribution. Under the old system, everyday living services (laundry, catering, cleaning) were subsidised by the government as part of the standard provider funding. Residents paid the BDF and MTCF in addition to their accommodation payment.

New System (Post-1 November 2025 Entry)

Residents entering care from 1 November 2025 onward pay under a restructured framework:

Basic Daily Fee: Same $66.80 per day.

Hotelling Contribution: A new means-tested fee of up to $22.15 per day covering everyday living services that were previously government-subsidised. No lifetime cap — ordinarily payable for the duration of the stay, subject to any applicable hardship assistance.

Non-Clinical Care Contribution (NCCC): Up to $107.32 per day covering personal care services (bathing, dressing, mobility, continence). Only triggered if the resident already pays the maximum Hotelling Contribution and has assessable assets exceeding $532,055. Capped at $137,917.01 lifetime or four years of cumulative payments.

Clinical care: Fully government-funded. Nursing, medication management, allied health, and palliative care cost the resident nothing.

Accommodation payment: RAD or DAP, but the RAD now has a 2% annual retention deduction (calculated daily on the reducing balance) for up to five years. The RAD is no longer 100% refundable.

Side-by-Side Comparison: Where the Numbers Diverge

The two systems aren't simply "old is cheaper" or "new is more expensive." The impacts depend on the resident's financial profile.

For a full Age Pensioner with minimal assets, the legacy system is generally more favourable. They paid little to no MTCF, and there was no Hotelling Contribution. Under the new system, even a low-means resident may be assessed for a partial Hotelling Contribution.

For a self-funded retiree with significant assets, the comparison is more nuanced. Under the legacy system, the MTCF could reach up to $372/day before caps applied — covering both personal and clinical care. Under the new system, clinical care is free, but the Hotelling Contribution (uncapped) plus the NCCC can produce comparable or higher total fees for high-asset residents. However, the NCCC lifetime cap of $137,917.01 is higher than the legacy lifetime cap of $86,185.23, meaning the new system can cost more over a long stay.

The RAD retention is the clearest penalty of the new system. A $700,000 RAD under the legacy rules was fully refundable. Under the new rules, the provider retains approximately $67,000 over five years. For residents expecting to stay longer than five years, the retention stops — but the amount already deducted is not returned.

Practical Implications for Families

If your parent entered care before November 2025: Verify with the provider and Services Australia that they are being assessed under the legacy fee schedule. Ensure the MTCF caps are being tracked — once the lifetime cap is reached, the fee drops to zero. Resist any provider suggestion to "upgrade" to the new system unless an aged care financial adviser has modelled the comparison.

If your parent is entering care now without no-worse-off protection: The new system applies automatically. Focus on the Hotelling Contribution and NCCC thresholds — the means-tested calculation determines whether your parent pays these, and the asset structuring decisions (home retention, RAD payment, financial asset allocation) directly influence the outcome.

If your parent was receiving a Home Care Package or was approved and waitlisted on the National Priority System as of 12 September 2024: They may be entitled to have their residential fees calculated under the legacy rules, even if they're only now transitioning to residential care. Confirm this entitlement with Services Australia before the provider calculates fees.

Our Paying for Residential Aged Care guide walks through both fee frameworks with worked examples tailored to each financial profile, so you can model the actual impact for your parent's situation.

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