Daily Accommodation Contribution (DAC) For Aged Care: Who Pays It?

Navigating aged care rules can be daunting, especially when it comes to understanding the costs involved. One of the key expenses you may encounter is the Daily Accommodation Contribution (DAC), a fee that can impact your cash flow and how aged care is funded.

In this article, I’ll explain what the DAC is, how it’s calculated, and who is required to pay it. Whether you’re exploring aged care options for yourself or a loved one, understanding the DAC is crucial for making informed decisions and planning effectively for the future.

Let’s delve into the essentials of the Daily Accommodation Contribution and how it fits into the broader landscape of aged care.

What is a Daily Accommodation Contribution (DAC)?

The Daily Accommodation Contribution (DAC) is a fee paid by certain residents of aged care facilities to cover the cost of their accommodation. This fee is determined by the Australian government based on an assessment of the resident’s financial situation.

A DAC is payable in addition to other aged care fees and costs such as the Basic Daily Care fee and potential Means-Tested Care fee and Additional Services Fee.

Who Pays a Daily Accommodation Contribution?

A Daily Accommodation Contribution (DAC) is payable by aged care residents with lower means on their date of entry into aged care.

A low means resident will either be partially supported or fully supported.

While the assessment of a resident being low-means is established at the entry point, the determination between partial and full support continues through ongoing financial assessments.

Residents who are fully supported do not pay a DAC, whereas those who are partially supported must contribute towards their accommodation costs.

The Daily Accommodation Contribution (DAC) is the equivalent to the corresponding Daily Accommodation Payment (DAP), which is payable by aged care residents who are not classified as low-means.

How is a Daily Accommodation Contribution Calculated?

The Daily Accommodation Contribution (DAC) in aged care is calculated based on an individual’s financial assessment conducted by the Australian Government. This process involves evaluating both the income and assets of the person entering aged care.

The Department of Human Services conducts a means test, which analyses the resident’s financial position to determine their ability to contribute to care and accommodation costs.

What’s the Difference Between a DAC and a RAC?

The difference between a Daily Accommodation Contribution (DAC) and a Refundable Accommodation Contribution (RAC) is that the DAC is a daily payment made towards the costs of aged care, whereas a RAC is a lump sum payment to the aged care provider that reduces or eliminates the amount of DAC payable.

The Refundable Accommodation Contribution (RAC) is the equivalent to the corresponding Refundable Accommodation Deposit (RAD), which is payable by aged care residents who are not classified as low-means.

The formula to calculate the RAC is: RAC = (DAC x 365) / MPIR (Maximum Permissible Interest Rate)..

The MPIR is 8.36% p.a. For the September 2024 quarter and is adjusted quarterly.

For example, if your DAC has been calculated as $20 per day, the equivalent RAC would be $20 x 365 / 8.36% = $87,320.57.

This means that, instead of paying a DAC of $20 per day, you could instead pay a RAC of $87,320.57 to the aged care facility and no DAC would be payable.

If a resident chooses to pay a partial RAC, then the DAC will be reduced using the following formula:

Reduced DAC = DAC – ((RAC x MPIR) / 365))

So, let’s say, using the example above, the resident only contributed $30,000 towards the RAC. What would the reduced DAC be?

Reduced RAC = $20 – (($30,000 x 8.36%) / 365) = $13.13 per day.

Is a DAC Refundable?

Daily Accommodation Contribution payments are not refundable, because these payments are effectively made in lieu of a lump sum payment to the aged care home (RAC). A RAC is refundable.

Should I Pay a DAC or a RAC?

There are several factors that need to be considered as to whether you should pay a DAC or a RAC. There is no standard approach. It’s possible to pay either a DAC, a RAD, or a combination of both, depending on your circumstances.

Consider the following factors when making your decision:

• Available Cash – Do you have the funds available to make a full or partial contribution towards the RAC? If not, you may need to pay a DAC instead.
• Financial Benefit – Compare the potential returns from investing your money elsewhere against the Maximum Permissible Interest Rate (MPIR). If your after-tax return on investments is likely to be lower than the MPIR, paying the RAC may be more financially advantageous as it equates to earning an effective guaranteed after-return equal to the MPIR rate.
• Longevity of Funds – Even if you can afford to pay a RAC, consider whether you need to keep funds liquid for emergencies or potential shortfalls in your cash flow while in aged care.

Understanding your options between a DAC and a RAD is vital for managing your finances in aged care effectively. Being well-informed helps ensure that you can fund your aged care appropriately while maintaining financial security.

At CoreValue we will help you navigate the complexities of aged care and find the best financial solutions for your family. If you have any questions or concerns regarding your situation, please call us on 1300 944 011 to speak to an aged care expert.

You might also like:

• Aged Care Costs Explained
• Refundable Accommodation Deposits: Aged Care RAD Explained
• Is It Better To Pay RAD or DAP for Aged Care?