The goal of the new legislation, Aged Care Act 2024– came into effect on 1 November 2025, is to make the system fairer and sustainable. This law aims to ensure that those who can afford to pay for daily living comforts do so and protect those with limited means. It introduces new funding and contribution structure for aged care in Australia.

The new aged care law, replacing the previous laws, is a “rights-based” legislation. It has a “Statement of Rights” including a right to receive a culturally safe care. This law represents a major shift in how aged care providers in Australia must recognise, respect, and respond to each person’s cultural identity, background, and beliefs.

Culturally safe care

The Act defines the term culturally safe care as “Older people receive care and support in a way that respects, protects and values their cultural identity, beliefs, language, spirituality and community connections.” It ensures that the aged care providers ensure that they
(1) understand each care receiver’s cultural background,
(2) consult with people and communities when designing care plans,
(3) deliver services that reflect the person’s culture such as religious or cultural dietary needs, communication in a person’s first language (or through interpreters), culturally appropriate celebrations, spiritual practices and prayers,
(4) train staff in cultural safety, awareness, and sensitivity and,
(5) create environments free from racism, bias, or cultural ignorance.

 Grandfathering provisions

All existing arrangements are grandfathered. If you are already in an aged care by 31 October 2025, your current arrangements stay in place, and you will not be adversely affected by the new rules.

 Types of aged care

Broadly, Australian federal government provides two main types of aged care: Residential Care and Home care, plus a few specialised options for particular needs.

The care itself is of two types: clinical care (defined as health-related and medically supervised services) and non- clinical care (supports that maintain daily living, independence, comfort, and wellbeing). The government pays in full for clinical care for all while non-clinical care is means tested.

Means testing of aged care services

From 1 November 2025, non-clinical living costs are means-tested. They include amenity/extra-comfort charges such as meals, cleaning, laundry, transport to appointments, mobility chairs and lifestyle amenities.

The means test works as follows:

The government will assess a resident’s income and assets. Based on that assessment, (a) Low-means persons (assets <$60,000) will have most or all costs subsidised by the government, (b) Middle-income persons (assets $300,000 to $500,000) will pay a partial contribution and (c) Higher-means persons (assets >$500,000) will pay the full cost of amenities.

There is a lifetime cap on total personal contributions (across all aged-care types), estimated around $130,000, after which all persons including the ultra-rich will pay no cost of care, everything will be borne by the government.

Residential aged care

When a person moves into residential aged care, they must pay for their accommodation. There are 3 options for residential accommodation payment: Refundable Accommodation Deposit (RAD), Daily Accommodation Payment (DAP) and Combination (RAD plus DAP).

The average current market rate (2025) for RAD varies from $450,000 to $550,000, depending on the area of the aged care service. Providers are allowed to retain up to 2% per year (called retention amount) from the RAD for up to five years, a total of 10% in that period.

The remaining 90% must be refunded within 14 days after the person dies or leaves the care. Under DAP, a daily fee for accommodation is paid, calculated on the RAD equivalent using the government-set maximum permissible charge which is currently (2025) 8.38%.

Home care

No RAD or DAP apply to Home Care since there is no accommodation component involved.

The Home care package works as follows: Government-subsidised Home Care Packages are tailored to each person’s needs and level of support. Home care services may include personal care (showering, dressing), domestic assistance (cleaning, laundry), transport to appointments, nursing and allied health (physiotherapy, podiatry), meal preparation and home and garden maintenance.

Business models of aged care entities

Aged care providers will receive government subsidies, linked directly to the person’s approved care needs. They also receive means tested co-contributions, if applicable. RAD/DAP payments are available to residential carers. No exit fees are allowed, and all unspent funds must be returned to the Commonwealth or transferred to the new provider when a person changes care services.

Providers use those funds to pay for various operating expenses such as care workers’ wages and travel, allied health or nursing services, consumables and equipment, food, laundry, and maintenance, accommodation, rostering, IT, compliance and, overheads (rent, utilities, insurance) as well as depreciation and interest on capital.

A provider’s profit is effectively their margin or net operating result after all service costs are paid.

Concluding remarks

There are things to check before entering either a home care or residential care. For Home Care, when does your service move to the new Support at Home program and will your service agreement change? For Residential Care, what are the accommodation payment options and how will the 2% retention work? Will the DAP be subject to CPI indexation? If you are means-tested: What will your non-clinical care contribution be under the new rules? For existing residents, are your arrangements grandfathered? Will your contract change?