Understanding RAC: How the Refundable Accommodation Contribution Affects Your Aged Care Costs
Introduction: Why Understanding the Refundable Accommodation Contribution Matters
Navigating aged care costs in Australia can feel overwhelming, especially for families exploring residential aged care for the first time. Among the many terms—RAD, DAP, DAC, MPIR, means testing, basic daily fees—one of the most misunderstood is the Refundable Accommodation Contribution (RAC).
Unlike the Refundable Accommodation Deposit (RAD), which is applicable to residents who can afford to pay for their accommodation, the Refundable Accommodation Contribution applies specifically to people assessed as low-means by Services Australia. It is not optional, not negotiable, and not set by the aged care provider. Instead, it is determined through the aged care means test and designed to ensure that financially disadvantaged older Australians can access safe and high-quality residential aged care.
Families frequently confuse RAC with RAD, leading to misunderstanding, unnecessary stress, and inaccurate budgeting. This comprehensive guide will help you understand:
- What the Refundable Accommodation Contribution is
- How RAC affects your aged care costs
- How Services Australia assesses your eligibility
- How RAC differs from RAD
- What the Daily Accommodation Contribution (DAC) is and when it applies
- What happens to the RAC when you leave aged care
- How RAC fits within the broader aged care funding system
- Real-world examples to make calculations clear
- Common mistakes families make—and how to avoid them
- Practical tips for navigating the financial side of aged care
Whether you are helping a loved one transition into care or planning ahead for your own future, understanding the Refundable Accommodation Contribution is essential to making confident, informed decisions.
What Is the Refundable Accommodation Contribution (RAC)?
The Refundable Accommodation Contribution is a lump-sum accommodation payment that low-means residents may be required to pay when entering residential aged care. It is part of the government’s approach to ensuring that aged care costs are shared fairly between the individual and the Commonwealth.
Key Features of the Refundable Accommodation Contribution
- RAC applies only to residents assessed as low-means under the aged care financial assessment.
- The amount is set by Services Australia, not by the aged care provider.
- Residents may pay the RAC as a lump sum or as part of their Daily Accommodation Contribution (DAC).
- The Refundable Accommodation Contribution is returned (refunded) when the resident leaves aged care or passes away, minus any legally allowed deductions.
- RAC ensures that older Australians with limited financial means can still enter comfortable, safe accommodation without paying the full RAD.
Why Does RAC Exist?
In the Australian aged care system, fees are structured to ensure fairness. While individuals with higher means pay the full accommodation price (RAD or DAP), the government subsidises care for people with limited assets and income. RAC is the mechanism that allows aged care homes to be fairly compensated while ensuring equitable access for financially disadvantaged seniors.
Who Is Eligible for the Refundable Accommodation Contribution?
Eligibility for RAC is determined through the Aged Care Means Test, which assesses:
- Income
- Assets
- Home ownership
- Financial products
- Pensions
- Superannuation
- Shares or investments
Services Australia evaluates your financial situation and assigns you to one of three categories:
Category 1: Not Low-Means (Full Paying Resident)
Residents in this category pay the full RAD or DAP set by the provider.
RAC does not apply.
Category 2: Low-Means Resident (Partially Supported)
Residents in this category pay a Refundable Accommodation Contribution.
The government also pays a portion of the accommodation cost.
Category 3: Fully Supported Resident
Residents pay no RAC and do not pay a RAD.
The government covers all accommodation costs.
Important Note
You cannot choose to pay RAC. It is assigned automatically based on your financial assessment.
RAC vs RAD: What’s the Difference?
Many families mistakenly assume RAC is simply a “cheaper RAD,” but they are entirely different.
RAD = Refundable Accommodation Deposit
- For residents with sufficient means
- Negotiated with and set by the aged care provider
- Fully refundable
- Can be paid as a lump sum or converted to DAP
RAC = Refundable Accommodation Contribution
- For low-means residents only
- Set by Services Australia, not the home
- Refundable
- Often paired with the Daily Accommodation Contribution (DAC)
- Not negotiable
Key Differences at a Glance
| Feature | RAD | RAC |
| Who pays? | Residents with higher means | Residents assessed as low-means |
| Who sets the amount? | Aged care home | Services Australia |
| Refundable? | Yes | Yes |
| Negotiable? | Yes | No |
| Paid as? | Lump sum or DAP | Lump sum or DAC |
| Government contribution? | No | Yes |
Understanding this distinction ensures families do not mistakenly plan for payments they will not be required to make.
How the Refundable Accommodation Contribution Is Calculated
Unlike RADs—which reflect market rates set by the provider—the RAC is calculated using strict federal rules. The calculation considers:
- Your assessable assets
- Your assessable income
- The Minimum Permissible Asset threshold
- Government formulas under the Aged Care Act
The Means Test Determines:
- Whether you pay RAC
- How much RAC you pay
- Whether DAC (Daily Accommodation Contribution) is also required
Assessable Assets Include:
- Bank savings
- Investments
- Superannuation
- Property (including your home unless a protected person lives there)
- Term deposits
- Bonds
- Gifts over the allowable limit
Assessable Income Includes:
- Pensions or allowances
- Employment income (if applicable)
- Rental income
- Investment income
- Financial assets deemed income
Daily Accommodation Contribution (DAC)
If you cannot pay your entire Refundable Accommodation Contribution upfront as a RAC lump sum, you may pay a Daily Accommodation Contribution.
DAC is:
- A daily fee
- Calculated based on the unpaid RAC portion
- Accrued daily and billed monthly
- Not refundable
DAC is calculated using the Maximum Permissible Interest Rate (MPIR).
Example
If your RAC is assessed at $150,000 and you choose (or are unable) to pay nothing upfront:
DAC = RAC × MPIR ÷ 365
DAC = 150,000 × (e.g., 8.34%) ÷ 365
DAC ≈ $34.27 per day
This example rate varies depending on the current MPIR.
How RAC Affects Your Total Aged Care Costs
Your total aged care costs typically include:
- Basic daily fee (everyone pays)
- Means-tested care fee (may apply)
- Refundable Accommodation Contribution (RAC)
- Daily Accommodation Contribution (DAC) (if RAC unpaid)
- Extra services fees (depending on the home)
The RAC helps determine how much you pay overall and how much the government contributes on your behalf.
Real-World RAC Examples
Example 1: Partially Supported Resident
Mary, age 82, has:
- Assets: $110,000
- Income: Age Pension only
Services Australia assesses her as low-means.
Her RAC is calculated as $68,000.
Mary can:
- Pay $68,000 RAC upfront
- OR pay part of it
- OR pay none and instead pay DAC
Example 2: Supported Resident with High Care Needs
Derek, age 89, has:
- Assets: $40,000
- No property
- Small super balance
Services Australia determines Derek is fully supported.
He pays:
- No RAC
- No RAD
- No DAC
The government pays all accommodation costs.
Example 3: Resident with Mixed Contribution
Linda, age 78, has:
- Assets: $175,000
- Home with protected person living in it
Her RAC is assessed at $120,000, and DAC applies on any unpaid portion.
If she pays half ($60,000), DAC applies only to the remaining $60,000.
Common Misconceptions About the Refundable Accommodation Contribution
Misconception 1: RAC is the same as RAD
False.
RAC is for low-means residents; RAD is for market-rate residents.
Misconception 2: The aged care home sets the RAC amount
False.
The government sets RAC through means testing.
Misconception 3: Families can negotiate the RAC
False.
It cannot be negotiated or changed by a provider.
Misconception 4: RAC is always required
False.
Fully supported residents pay no RAC.
Misconception 5: Paying RAC reduces other aged care fees
Not necessarily.
RAC is separate from care fees like the MTCF.
What Happens to the RAC When You Leave Aged Care?
The RAC is refunded when:
- You leave the aged care home
- Or you pass away
Refunds are processed:
- Within 14 days after the resident leaves AND the provider has received probate/grant of representation (for estates)
- In full, minus any lawful deductions
No interest is paid on RAC refunds.
How Supportive Aged Care Providers Assist Families With RAC
Aged care providers like Superior Care Group help residents and families understand RAC by:
- Explaining accommodation payment options
- Providing financial information meetings
- Monitoring changes in government policy
- Offering transparent pricing
- Supporting residents through the means assessment process
- Coordinating with Services Australia and My Aged Care
Supportive providers ensure families never feel alone during complex financial decisions.
Frequently Asked Questions (FAQs)
1. Is the Refundable Accommodation Contribution mandatory?
If Services Australia assesses you as low-means, then yes—RAC applies.
2. Is the Refundable Accommodation Contribution negotiable?
No. RAC is set by the government.
3. Can I choose between RAC and RAD?
No. Your means test decides which applies.
4. How do I know if I am a low-means resident?
Services Australia will notify you after assessing your income and assets.
5. Does my home affect my RAC assessment?
Yes, unless a protected person lives there.
6. What is DAC?
The Daily Accommodation Contribution (DAC) is a daily fee applied to unpaid RAC amounts.
7. Will my RAC be refunded?
Yes—minus lawful deductions—when you leave aged care.
8. Can RAC increase over time?
No. Once set for the resident, it remains fixed.
Conclusion: Navigating RAC With Confidence and Compassion
Understanding the Refundable Accommodation Contribution (RAC) is essential for older Australians and their families planning residential aged care. RAC is one of the most misunderstood parts of aged care funding, yet it plays a crucial role in ensuring fairness and accessibility for low-means residents.
Unlike RADs, RACs are determined solely by Services Australia. They ensure that financially disadvantaged seniors can still enter high-quality residential aged care without being burdened by accommodation costs that exceed their capacity. By understanding how RAC works—how it is calculated, how DAC applies, when refunds occur, and how it differs from RAD—you can plan aged care costs with clarity and confidence.
At Superior Care Group , we understand that navigating aged care fees can feel complex and overwhelming. That’s why we take the time to guide families step-by-step through their options, explain the Refundable Accommodation Contribution clearly, and support them with transparent information, compassion and respect.
Our commitment is to ensure every resident—regardless of their financial circumstances—experiences comfort, dignity, safety and a genuine sense of belonging in our aged care communities. Whether you need help understanding RAC, planning future care, or exploring accommodation options, we are here to support you every step of the way.
If you’re beginning your aged care journey or seeking clarity on payment options, we welcome you to speak with our caring team. Together, we can find the right pathway that gives you peace of mind and helps your loved one feel truly at home.
