The Income Tested Care Fee is a crucial component of aged care funding in Australia that determines how much individuals contribute toward their care costs. Understanding how income tested care fees are calculated, who pays them, and how to manage these costs is essential for anyone navigating the aged care system. This comprehensive guide explains everything you need to know about aged care fees, income testing, and financial planning for care costs.

What is the Income Tested Care Fee?

The Income Tested Care Fee is an additional contribution that some aged care recipients pay based on their income level. This fee is calculated using a means test that assesses your income and determines your capacity to contribute toward your care costs beyond the basic daily fee.

Key Features of Income Tested Care Fees

Income-Based Calculation:

  • Based on your assessable income
  • Calculated using Centrelink income assessment rules
  • Reviewed annually or when circumstances change
  • Can be zero if income is below threshold

Additional to Basic Fees:

  • Paid in addition to basic daily care fee
  • Separate from accommodation costs
  • Applies to both home care and residential care
  • Capped at maximum annual amounts

Means Tested:

  • Uses same income test as Age Pension
  • Includes income from all sources
  • Deeming rules apply to financial assets
  • Regular reviews and updates

How Income Tested Care Fees are Calculated

Income Assessment Process

Step 1: Income Calculation

  • Employment income (wages, salary, business income)
  • Investment income (interest, dividends, rent)
  • Superannuation and pension payments
  • Deemed income from financial assets

Step 2: Income Test Application

  • Free area threshold ($32,279.80 annually for singles, $51,979.20 for couples in 2024-25)
  • 50% of income above free area contributes to care fee
  • Maximum annual cap applies
  • Minimum income guarantee protection

Step 3: Fee Determination

  • Daily care fee calculated based on annual income test
  • Converted to fortnightly payment amount
  • Applied to care costs through provider
  • Regular review and adjustment

Income Tested Care Fee Rates 2024-25

Free Area (No Income Tested Care Fee):

  • Singles: $32,279.80 per year ($621.53 per fortnight)
  • Couples (combined): $51,979.20 per year ($1,001.52 per fortnight)
  • Couples (each): $25,989.60 per year ($500.76 per fortnight)

Fee Calculation:

  • 50% of income above free area
  • Maximum annual fee: $16,511.52 (2024-25)
  • Maximum daily fee: $45.24 (2024-25)
  • Maximum fortnightly fee: $633.36 (2024-25)

Home Care Package Fee Caps:

  • Level 1: $5.15 per day maximum
  • Level 2: $8.74 per day maximum
  • Level 3: $17.48 per day maximum
  • Level 4: $26.22 per day maximum

Who Pays Income Tested Care Fees?

Home Care Package Recipients

Eligibility for Income Tested Care Fee:

  • All Home Care Package recipients
  • Income above free area threshold
  • Applies to all package levels (1-4)
  • Calculated when package is assigned

Fee Application:

  • Deducted from package funding
  • Reduces available service budget
  • May affect service hours available
  • Provider manages fee collection

Example Calculations:

Single Person - Annual Income $45,000:

  • Income above free area: $45,000 - $32,279.80 = $12,720.20
  • Annual care fee: $12,720.20 × 50% = $6,360.10
  • Daily care fee: $6,360.10 ÷ 365 = $17.42 per day
  • Fortnightly care fee: $244.62

Couple - Combined Annual Income $70,000:

  • Income above free area: $70,000 - $51,979.20 = $18,020.80
  • Annual care fee: $18,020.80 × 50% = $9,010.40
  • Daily care fee: $9,010.40 ÷ 365 = $24.69 per day
  • Fortnightly care fee: $345.78

Residential Care Recipients

Means Tested Care Fee:

  • Applies to residents entering care from July 2014
  • Based on both income and assets assessment
  • Higher fees due to accommodation costs
  • Maximum annual and lifetime caps

Fee Structure:

  • Income test component (as above)
  • Assets test component (additional assessment)
  • Combined means tested care fee
  • Separate from accommodation payments

Types of Income Assessed

Employment and Business Income

Wages and Salary:

  • Gross employment income
  • Including overtime, bonuses, commissions
  • Salary sacrificing arrangements
  • Director fees and sitting fees

Business and Self-Employment:

  • Net business income
  • Professional practice income
  • Partnership and trust distributions
  • Rental property income (net)

Irregular Income:

  • Averaged over appropriate period
  • Seasonal work considerations
  • Contract and consulting income
  • Commission-based earnings

Investment and Financial Income

Bank Interest and Term Deposits:

  • Actual interest received
  • Or deemed income if higher
  • All financial institutions
  • Joint account proportional share

Share Dividends:

  • Cash dividends received
  • Franking credit inclusions
  • Share trading profits
  • Managed fund distributions

Superannuation and Pensions:

  • Age Pension payments
  • Superannuation pension payments
  • Account-based pension income
  • Allocated pension payments

Deemed Income from Assets

Deeming Thresholds 2024-25:

  • Singles: First $60,400 deemed at 0.25%, balance at 2.25%
  • Couples (combined): First $100,200 deemed at 0.25%, balance at 2.25%

Assets Subject to Deeming:

  • Bank accounts and term deposits
  • Shares and managed investments
  • Unit trusts and hybrid securities
  • Cash and readily convertible assets

Assets Exempt from Deeming:

  • Principal home (for home care)
  • Personal effects and household contents
  • Motor vehicle (up to $13,250)
  • Pre-paid funeral expenses

Managing Income Tested Care Fees

Legitimate Strategies to Reduce Fees

Income Smoothing:

  • Timing of investment income
  • Superannuation contribution strategies
  • Asset restructuring for tax efficiency
  • Professional financial advice

Asset Structuring:

  • Principal home protection strategies
  • Gift and transfer considerations (5-year rule)
  • Trust and estate planning structures
  • Investment property decisions

Pension Optimization:

  • Age Pension claiming strategies
  • Superannuation vs pension balance
  • Timing of retirement decisions
  • Couples’ pension optimization

Professional Financial Planning

Aged Care Financial Advice:

  • Specialist aged care financial planners
  • Comprehensive situation analysis
  • Strategy development and implementation
  • Ongoing review and adjustment

Areas of Focus:

  • Fee minimization strategies
  • Asset protection planning
  • Income optimization
  • Estate planning integration

Costs and Benefits:

  • Initial consultation: $200-$500
  • Comprehensive plan: $2,000-$5,000
  • Ongoing management: $1,500-$3,000 annually
  • Potential savings often exceed costs

Income Tested Care Fee Reviews and Appeals

Regular Reviews

Annual Reviews:

  • Automatic annual review by Services Australia
  • Based on updated income information
  • Effective from July 1 each year
  • Notification of changes provided

Change of Circumstances:

  • Report significant income changes
  • New fee calculation within 28 days
  • Retrospective adjustments may apply
  • Both increases and decreases possible

Review and Appeal Process

Internal Review:

  • Request review if you disagree with assessment
  • Provide additional information or documentation
  • Services Australia reconsiders decision
  • Written decision provided

Administrative Appeals Tribunal:

  • External review if internal review unsuccessful
  • Independent assessment of case
  • Legal representation available
  • Binding decision on all parties

Common Appeal Reasons:

  • Income calculation errors
  • Asset valuation disputes
  • Deeming rule applications
  • Hardship circumstances

Hardship and Financial Difficulty

Hardship Provisions

Temporary Fee Reduction:

  • Available in cases of severe financial hardship
  • Requires demonstration of inability to pay
  • Temporary measure pending resolution
  • Regular review of circumstances

Permanent Fee Waiver:

  • Rare circumstances only
  • Demonstrated ongoing inability to pay
  • Comprehensive financial assessment
  • Ongoing monitoring required

Applying for Hardship Assistance

Documentation Required:

  • Detailed financial statements
  • Bank statements (3-6 months)
  • Evidence of expenses and commitments
  • Medical or social circumstances

Assessment Process:

  • Comprehensive financial review
  • Consideration of all income and assets
  • Review of reasonable living expenses
  • Decision on hardship application

Impact on Care Services

Home Care Package Impact

Budget Reduction:

  • Income tested care fee reduces package budget
  • Less funding available for services
  • May affect service hours or types
  • Provider must manage within reduced budget

Service Planning:

  • Care needs vs available budget
  • Prioritizing essential services
  • Client contribution discussions
  • Alternative service options

Quality Considerations:

  • Ensuring adequate care within budget
  • Monitoring care outcomes
  • Adjusting services as needed
  • Family and informal support integration

Residential Care Impact

Total Cost Calculation:

  • Daily care fee ($60.54 per day basic)
  • Means tested care fee (income and asset tested)
  • Accommodation payment (if applicable)
  • Extra service fees (if applicable)

Care Planning:

  • Clinical care needs assessment
  • Financial capacity consideration
  • Family financial planning
  • Quality of life priorities

Future Changes and Reforms

Aged Care Reform 2025

Support at Home Program:

  • Integration of home care services
  • Streamlined assessment and access
  • Enhanced funding and support
  • Revised fee structures possible

Fee Structure Changes:

  • Potential adjustments to income thresholds
  • Revised fee calculation methods
  • Greater transparency and consistency
  • Improved hardship provisions

Planning for Changes

Stay Informed:

  • Monitor government announcements
  • Consult aged care specialists
  • Review financial strategies regularly
  • Plan for potential changes

Flexibility in Planning:

  • Avoid irreversible financial decisions
  • Maintain liquidity for adjustments
  • Professional advice for major changes
  • Regular strategy reviews

Income Tested Care Fee Examples

Case Study 1: Single Home Care Recipient

Situation:

  • Age: 78, single
  • Annual income: $42,000 (Age Pension + super)
  • Home Care Package Level 2

Calculation:

  • Income above free area: $42,000 - $32,279.80 = $9,720.20
  • Annual care fee: $9,720.20 × 50% = $4,860.10
  • Daily care fee: $4,860.10 ÷ 365 = $13.32
  • Maximum Level 2 fee: $8.74 per day
  • Actual daily fee: $8.74 (capped)

Case Study 2: Couple with Investment Income

Situation:

  • Ages: 75 and 73, married
  • Combined annual income: $85,000
  • One spouse receiving Home Care Package Level 3

Calculation:

  • Income above free area: $85,000 - $51,979.20 = $33,020.80
  • Annual care fee: $33,020.80 × 50% = $16,510.40
  • Daily care fee: $16,510.40 ÷ 365 = $45.23
  • Maximum annual fee: $16,511.52
  • Actual daily fee: $45.23

Case Study 3: High-Income Retiree

Situation:

  • Age: 69, single
  • Annual income: $120,000 (investment income)
  • Home Care Package Level 4

Calculation:

  • Income above free area: $120,000 - $32,279.80 = $87,720.20
  • Annual care fee: $87,720.20 × 50% = $43,860.10
  • Maximum annual fee: $16,511.52
  • Actual annual fee: $16,511.52 (capped)
  • Daily fee: $45.24

Frequently Asked Questions

How often is my income tested care fee reviewed?

Income tested care fees are reviewed annually by Services Australia, typically effective from July 1. You can also request a review if your circumstances change significantly.

Can my income tested care fee be reduced?

Yes, fees can be reduced if your income decreases, through legitimate financial planning strategies, or in cases of financial hardship. Professional advice is recommended.

What happens if I can’t afford the income tested care fee?

If you’re experiencing financial hardship, you can apply for a fee reduction or waiver. Contact Services Australia to discuss your circumstances and available options.

Do I pay income tested care fees if I’m receiving the Age Pension?

You may still pay income tested care fees if your total income (including Age Pension) exceeds the free area threshold. The fee is based on your total assessable income.

How does the income tested care fee affect my care services?

For home care packages, the fee reduces your available service budget. For residential care, it’s an additional cost alongside basic daily fees and accommodation payments.

Conclusion

Understanding Income Tested Care Fees is essential for effective aged care financial planning. These fees can significantly impact your care costs and available services, making it important to:

  • Understand how fees are calculated
  • Know your rights and review options
  • Consider legitimate fee reduction strategies
  • Seek professional financial advice when needed
  • Plan ahead for potential care needs

The income tested care fee system aims to ensure those with greater financial capacity contribute more toward their care costs while protecting those on lower incomes. With proper understanding and planning, you can navigate this system effectively and ensure access to the care services you need.

For personalized advice on income tested care fees and aged care financial planning, consult with an aged care financial specialist who can assess your specific circumstances and develop appropriate strategies for your situation.

For more information about income tested care fees, contact Services Australia on 1800 227 475 or visit servicesaustralia.gov.au for current rates and calculation details.