Aged care funding, fees and means testing 

This article states Commonwealth law. Chapter 4 of the Aged Care Act 2024 (Cth) is the funding chapter, and it is where most of the Act's complexity sits¹. Students usually approach aged care through rights and quality standards, meet Chapter 4 late, and find it impenetrable. It is not, once two things are clear: which direction each payment runs, and how much of the chapter is actually in the rules rather than the Act.

A note on currency. This article is written from Compilation No. 2, compilation date 1 July 2026, which incorporates Act No. 45 of 2025. Chapter 4 has already been amended once — Division 3A of Part 2 was inserted, and Divisions 2A and 4A added — so identify the compilation whenever you cite a section of it.

The two directions of money

Section 190 gives the simplified outline, and it is worth reading before anything else in the chapter. Funded aged care services are paid for by Commonwealth contributions and, in some cases depending on the individual's means, individual contributions and fees.

The Commonwealth contribution is generally a subsidy paid to the registered provider for delivering a service to an individual. It is not paid to the older person. The amount depends on the classification type and the service group through which the service is delivered, and supplements can increase it.

The individual's contribution runs the other way, from the individual to the provider. The two are linked: s 190 states that where individual contributions and fees are payable, the subsidy paid to the provider is reduced commensurately. That is why Chapter 4 keeps pairing a subsidy subdivision with a "reduction amounts" subdivision — for home support, for assistive technology, for home modifications and for residential care. The reduction is the mechanism by which means testing has any fiscal effect at all.

Two consequences follow for problem questions. Means testing does not change what services a person receives; it changes who pays for them. And a dispute about a contribution rate is a dispute with the System Governor, not with the provider, even though the provider is the party sending the invoice.

Four service groups, and where the money is held

Part 2 organises subsidy by service group: home support, assistive technology, home modifications, and residential care. Specialist aged care programs sit in Division 5 and are funded partly by grants under Division 7 rather than subsidy — including, s 190 records, programs for the benefit of Aboriginal and Torres Strait Islander persons.

Division 1 splits home support subsidy in two. A person-centred subsidy attaches to the individual, and the Act works it out against an available account balance — an ongoing home support quarterly account balance under s 193, or a short-term account balance under s 195. A provider-based subsidy under ss 201 to 205 attaches to the provider's service delivery branch and runs on a financial year balance.

The account structure matters because money can be left in it. Division 3A, inserted by the 2025 amendments, deals with the unspent Commonwealth portion: it must be returned to the Commonwealth when the provider elects to return it, when the individual transfers between provider service delivery branches, or when the provider ceases to deliver services (ss 226B to 226D). An unspent balance is Commonwealth money, not provider revenue.

Contributions in a home or community setting

Section 273(1) permits a registered provider delivering a service through home support, assistive technology or home modifications to charge the individual an individual contribution.

Section 273(2) then works out the amount by a method statement. Step 1 takes the individual's individual contribution rate under s 314. For assistive technology and home modifications, Step 1 takes the lower of that rate on the day of delivery and the rate on a day prescribed by the rules — a protection against a rate rising between assessment and installation. Step 2, where the subsidy basis is efficient price or unit price, multiplies the hours or units delivered by the lesser of the base price for the service and the price the provider actually charges. Step 3 multiplies the two.

Notice what Step 2 does. A provider that charges above the base efficient price cannot pass the excess to the individual through the contribution — the individual's share is calculated on the lower figure. The pricing risk of charging above the benchmark stays with the provider.

Means testing: two different tests

The Act runs two means tests, and confusing them is the most common error in this area.

In a home or community setting, Part 5 Division 1 applies. Section 314(1) requires the System Governor to determine an individual contribution rate, expressed as a percentage, for the individual for each means testing category, in accordance with criteria or methods prescribed by the rules. Section 314(2) requires notice within 14 days, and s 314(3) requires the notice to specify the rate for each category, set out the reasons, and state how the individual may apply for reconsideration. Sections 315 to 318A then deal with notifying changes in circumstances, and with varying or revoking the determination — including s 317, which varies a determination following certain social security decisions.

In an approved residential care home, Part 5 Division 2 applies and produces a daily means tested amount — a dollar figure per day, not a percentage. Section 319 works it out by a long method statement combining a per day income tested amount with an assets component. Steps 2 to 5 show the shape: the amount is zero while total assessable income does not exceed the total assessable income free area; above that, it is 50% of the excess divided by 364 up to the first income threshold, and tapers through further thresholds above it. Income is determined under s 322 and assets under s 329, each with its own variation and revocation machinery.

Both tests have a means not disclosed status — s 314A and s 320 — with an election available under s 314B and s 321. A person who declines to disclose is not excluded from care; they are assessed as if the means test produced the maximum result.

Residential care fees

Division 2 of Part 3 sets what a resident can be charged. Section 277(1) works out the maximum daily amount of the resident contribution in four steps: the basic daily fee, plus the compensation payment fee if any, plus the hotelling contribution under s 278, plus the non-clinical care contribution under s 279. Section 280 makes the last two zero in some circumstances.

Section 284 permits fees for higher everyday living — the statutory home of what providers market as additional services. Sections 281 and 282 permit fees for a pre-entry period and for reserving a bed.

The Act names each component and caps their sum. It sets almost no amounts: s 277(2) makes the basic daily fee the amount prescribed by, or worked out in accordance with, the rules, with a fallback formula if no rules are in force. This is the pattern throughout Chapter 4. *The structure is in the Act; the numbers are in the Aged Care Rules 2025.* A student who cites the Act for a dollar figure has cited the wrong instrument.

Accommodation: a separate regime again

Part 4 deals with accommodation, and it is separate from both subsidy and daily fees.

Whether an individual pays an accommodation payment or an accommodation contribution depends on their daily means tested amount on their start day (s 190). The distinction is set by s 298(a): an individual must not be charged an accommodation contribution unless their daily means tested amount at the start day is less than the maximum accommodation supplement amount for that day. In short, the contribution is the subsidised route for those of lesser means; the payment is the unsubsidised route.

Either may be paid as daily payments, as a lump sum known as a refundable deposit, or as a combination (s 190). Division 6 governs daily payments — payment in advance under s 299, when they do not accrue under s 300, and interest under s 301.

Section 289(1) allows the rules to prescribe a maximum accommodation payment amount; s 290 allows the Pricing Authority to approve a higher amount on a provider's application. Section 292 requires information to be given before an accommodation agreement is entered into, and s 293(1) requires the agreement to be entered into before the provider starts delivering ongoing services. Section 293(2) adds a real protection: a provider must not require an individual to choose how to pay before their start day. The choice of lump sum or daily payment cannot be extracted at the point of admission.

Refundable deposits

Division 7 is the consumer-protection heart of Part 4, and the provision to know is s 305.

Section 305(1) prohibits a provider from accepting a refundable deposit where the individual has provided enough information for the daily means tested amount to be worked out, pays within 28 days after their start day, and payment would leave their remaining assets below the minimum permissible asset value. Section 305(2) fixes that value as 2.25 times the basic age pension amount, rounded to the nearest $500, at the time the provider starts delivering ongoing services — or a higher amount prescribed by the rules.

This is one of the few places where the Act itself carries the arithmetic rather than delegating it, which tells you how important Parliament took it to be. The rest of the Division follows: the provider may retain income derived from the deposit (s 306), may deduct only permitted amounts (ss 307 to 309), must use the deposit only for permitted purposes (s 310), and must refund or transfer the balance (ss 311 and 312), with interest under s 313.

Applying this in a problem question

1. Identify the service group and the setting. Home or community, or an approved residential care home? The two means tests follow from this and nothing else.
2. Separate the payments. Subsidy runs Commonwealth to provider; contributions and fees run individual to provider; the second reduces the first.
3. For a home or community setting, apply the s 314 percentage rate through the s 273(2) method statement, and check the lower-of rules in Steps 1 and 2.
4. For residential care, work out the daily means tested amount under s 319 before anything else — accommodation liability under s 298 turns on it.
5. Build the resident contribution component by component under s 277, and name the source of each amount.
6. For accommodation, check the s 293 sequence — information, agreement, then service — and the s 293(2) prohibition on forcing an early payment choice.
7. Where a refundable deposit is in issue, apply s 305 before considering deductions.
8. Cite the rules for every number, and the Act for every structure.

Self-check

• Have I said which party pays whom, in each direction, before calculating anything?
• Have I used the percentage rate for home settings and the daily means tested amount for residential care, and not mixed them?
• Have I attributed each amount to the rules rather than to the Act?
• Have I identified the compilation of the Act I am citing?
• Have I treated a contribution dispute as a matter for the System Governor rather than the provider?