Why the home matters so much
For most older Australians, the family home is their largest single asset — often representing 60% to 80% of total wealth. The median house price in Sydney exceeds $1.3 million; in Melbourne it is above $900,000; and even in regional areas, a modest home is often worth $400,000 to $600,000.
How the family home is treated by the aged care assets test can make a difference of thousands to tens of thousands of dollars per year in means-tested care fees. A home that is exempt adds nothing to the fee calculation. A home that is included — whether because it has been sold, rented, or simply passed the 2-year exemption window — can push the means-tested care fee to its annual cap.
This guide explains exactly when the home is exempt, when it is included, and what the financial impact is in each scenario. If you are helping a parent navigate aged care, the decisions you make about the family home in the first few months are among the most consequential.
Exemption rules by situation
The family home is treated differently depending on who (if anyone) continues to live there after the person enters residential aged care. The rules are summarised below and explained in detail underneath.
| Situation | Assets test treatment |
|---|---|
| Partner still living in the home | Exempt indefinitely |
| Other protected person living there | Exempt while they remain |
| Home vacated and not rented | Exempt for up to 2 years |
| Home rented out | Included immediately; rental income assessable |
| Home sold | Proceeds included immediately |
Partner at home — indefinite exemption
This is the strongest protection in the system. If the person entering care has a partner (spouse or de facto) who continues to live in the family home, the home is completely exempt from the assets test for as long as the partner remains there. There is no time limit. The home could be worth $2 million or $200,000 — it makes no difference. It simply does not count.
See our Aged Care for Couples guide for the full financial picture when one partner enters care.
Protected person — indefinite exemption
Even if the person entering care does not have a partner at home, the home may still be exempt if a protected person continues to live there. Protected persons are defined by legislation and include:
- A carer who has lived in the home continuously for at least 2 years immediately before the person entered care, and who was eligible for an Australian Government income support payment for carer duties during that period
- A close relative (parent, child, brother, or sister) aged 65 or over who has lived in the home for at least 5 continuous years immediately before the person entered care
- A dependent child of the person entering care
Home vacated and not rented — 2-year exemption
If no partner or protected person lives in the home, and the home is left vacant (not rented), it is exempt from the assets test for up to 2 years from the date the person enters permanent residential aged care. See the detailed section on the 2-year rule below.
Home rented out — included immediately
If the home is rented out at any point, it is included in the assets test immediately — the 2-year exemption does not apply. The rental income is also counted as assessable income for the income test. This creates a double impact on the means-tested care fee. See renting vs selling below.
Home sold — proceeds included immediately
If the home is sold, the sale proceeds become assessable assets immediately. Any cash, investments, or other assets purchased with the proceeds are included in the assets test from the date of sale. The only exception: if the RAD is paid from the sale proceeds, the RAD itself is not an assessable asset (because it is a refundable deposit, not a permanent cost).
The 2-year rule
If your parent vacates their home and leaves it empty (not rented), the home value is exempt from the assets test for up to 2 years. This is one of the most important rules in aged care financial planning, and it is frequently misunderstood.
When does the clock start?
What happens at the end of 2 years?
After 2 years, the home is included in the assets test at its current market value — not the original purchase price. Services Australia may request a valuation. If the home has appreciated significantly since purchase, this can result in a large jump in assessed assets and a corresponding increase in the means-tested care fee.
The capped home value
For the means-tested care fee, there is a cap on the home value that can be included in the assets test. As of September 2025, the cap is $198,550.80. This means that even if the home is worth $1 million, only $198,550.80 is counted for the assets test — unless the person also has assets above the asset-free area from other sources.
Interplay with the lifetime cap
The lifetime cap on means-tested care fees is $78,526. Once your parent has paid this total amount in MTCF (across both home care and residential care), the MTCF drops to $0 permanently. At the maximum annual MTCF of $32,719, this cap is reached in approximately 2 years and 5 months. For residents who remain in care beyond that point, the home value becomes irrelevant to fee calculations — because no further MTCF is charged.
Worked example: selling vs keeping
To illustrate the real dollar impact, let's compare two scenarios for the same person with the same home.
Scenario A: Home left vacant (2-year exemption)
Margaret leaves the home empty. For the first 2 years, the home is exempt.
| Calculation | Amount |
|---|---|
| Assessable assets (other assets only) | $80,000 |
| Asset excess ($80,000 − $59,500) | $20,500 |
| Asset test fee ($20,500 × 17.5%) | $3,588/yr |
| Income test fee (pension below $31,140) | $0 |
| Total MTCF — years 1–2 | $3,588/yr |
After 2 years, the home value is included (capped at $198,550.80 for the home component):
| Calculation | Amount |
|---|---|
| Assessable assets ($80,000 + $198,550.80 cap) | $278,550.80 |
| Asset excess ($278,550.80 − $59,500) | $219,050.80 |
| Asset test fee ($219,050.80 × 17.5%) | $38,334 → capped at $32,719/yr |
| Total MTCF — year 3 onwards | $32,719/yr |
Scenario B: Home sold immediately
Margaret sells the home in March 2026 for $800,000. She uses $550,000 to pay the RAD (refundable, so not an assessable asset) and keeps $250,000 in savings.
| Calculation | Amount |
|---|---|
| Original other assets | $80,000 |
| Sale proceeds retained (not used for RAD) | $250,000 |
| Total assessable assets | $330,000 |
| Asset excess ($330,000 − $59,500) | $270,500 |
| Asset test fee ($270,500 × 17.5%) | $47,338 → capped at $32,719/yr |
| Total MTCF — from day one | $32,719/yr |
Margaret pays the maximum MTCF from day one. The upside is that she eliminated the DAP entirely by paying the $550,000 RAD — saving approximately $46,000 per year in accommodation costs. The RAD is also refunded to her estate when she leaves care.
Renting vs selling
If the home cannot be left vacant — perhaps because of maintenance costs or mortgage payments — families often consider renting it out. This generates income but has significant implications for aged care fees.
| Renting out | Selling | Leaving vacant | |
|---|---|---|---|
| Assets test impact | Home value included immediately | Sale proceeds included immediately | Exempt for 2 years |
| Income test impact | Rental income assessable | No ongoing income impact | No impact |
| Flexibility | Home retained; can be sold later | Capital realised but home lost | Home retained; time to decide |
| CGT | Main residence exemption may apply for up to 6 years | Main residence exemption if sold within exemption period | N/A while held |
Worked example: renting the home
Because the home is rented, both the home value (capped at $198,550.80) and the rental income are included in the assessment from day one:
| Test | Calculation | Amount |
|---|---|---|
| Assets test | ($80,000 + $198,550.80 − $59,500) × 17.5% | $38,334 → capped at $32,719/yr |
| Income test | ($29,754 + $26,000 − $31,140) × 50% | $12,307/yr |
| Total MTCF | $32,719 + $12,307 = $45,026 → capped | $32,719/yr |
Margaret receives $26,000 per year in rent — but after the $32,719 annual MTCF cap (which she would hit regardless due to asset values), the rental income does not increase her fees further in this example. However, she also loses the 2-year exemption entirely by renting. The right choice depends on whether the rental income exceeds the fee cost of losing the exemption.
Capital gains tax considerations
The family home normally qualifies for the main residence CGT exemption, meaning no capital gains tax is payable when sold. If the home is rented out, this exemption may still apply for up to 6 years from when it was first used to produce income — provided it is not replaced by another main residence. If the home is sold within this 6-year window, no CGT applies on the gain. After 6 years of renting, a partial CGT liability may arise.
Couples: one partner in care
When one partner enters aged care and the other remains at home, the family home is exempt from the assets test indefinitely — as long as the partner continues to live there. This is the single most valuable financial protection for couples in the aged care system.
What happens if the at-home partner also enters care?
If the second partner also enters residential aged care and the home is vacated, the 2-year exemption clock starts from when the second partner enters care (and the home is vacated). After 2 years, the home value is included in the assets test for both partners — though the combined value is halved for each partner's individual assessment.
What happens if the at-home partner dies?
If the at-home partner passes away, the home exemption continues for 2 years from the date of death (provided the home is not sold or rented during that period). After 2 years, the home value is included in the surviving partner's assets test.
Downsizing considerations
If the at-home partner wants to downsize to a smaller property, the sale proceeds from the original home are not included in the aged care assets test — as long as they are used to purchase a new principal home that the partner moves into. The new home becomes the exempt principal home. However, any surplus proceeds (sale price minus purchase price of new home) become assessable assets.
See our Aged Care for Couples guide for the full picture on income splitting, pension rates, and planning strategies.
Impact on the means-tested care fee
To illustrate how different home values affect the means-tested care fee, here is a comparison assuming the home is included in the assets test (i.e., sold, rented, or past the 2-year exemption). Assumes single person with $50,000 in other assets, income below the free area.
| Home value | Capped home value | Total assessable assets | Additional annual MTCF |
|---|---|---|---|
| Home exempt | $0 | $50,000 | $0 (below asset-free area) |
| $400,000 | $198,551 | $248,551 | $33,084 → capped at $32,719 |
| $600,000 | $198,551 | $248,551 | $33,084 → capped at $32,719 |
| $800,000 | $198,551 | $248,551 | $33,084 → capped at $32,719 |
| $1,200,000 | $198,551 | $248,551 | $33,084 → capped at $32,719 |
The annual cap ($32,719) and lifetime cap ($78,526) further protect against extreme outcomes. Even in the worst case — home included, high assets, high income — the MTCF cannot exceed $32,719 per year, and total MTCF paid over a lifetime cannot exceed $78,526.
Use our free calculator to model different scenarios based on your specific home value and financial situation.
Can you gift the home to avoid fees?
Families sometimes consider transferring the home to children or other family members before the person enters aged care, hoping to reduce assessable assets. This strategy does not work and can create additional problems.
Centrelink's gifting rules state that any gifts exceeding $10,000 in a single financial year (or $30,000 over a rolling five-year period) are still counted as belonging to the person for both the income test (via deemed income on the gifted amount) and the asset test. This is called the deprivation provision.
- If a $800,000 home is gifted, $790,000 is treated as a deprived asset (the first $10,000 is within the annual limit). This $790,000 remains on the person's assets test for 5 years from the date of the gift.
- Deemed income is calculated on the deprived amount at Centrelink's deeming rates — which would also reduce the Age Pension.
- Capital gains tax may apply to the recipient when they eventually sell the property, since the main residence exemption does not transfer.
What about the 2025 fee changes?
The Aged Care Act 2024 introduced new fee structures from 1 November 2025. The means-tested care fee (MTCF) was replaced by two new fees: the Non-Clinical Care Contribution (NCCC) and the Hotelling Supplement Contribution (HSC).
However, the family home exemption rules are unchanged. The 2-year rule, partner exemption, protected person rules, and capped home value all continue to operate in the same way. What has changed is how the asset value feeds into the fee calculation — the new system uses a banded approach with different thresholds and a different formula (the daily Means-Tested Amount or MTA).
Next steps
The family home decision is too important to make under pressure. Here are the steps we recommend:
- Do nothing with the home for at least the first few months. The 2-year exemption gives you time. There is no financial penalty for waiting (as long as the home is not rented).
- Get a personalised cost estimate using our free calculator — model both the “home exempt” and “home included” scenarios to see the actual fee difference for your parent's situation.
- Request a means assessment from Services Australia (1800 227 475) to get the official fee advice letter before committing to any facility.
- Consult an aged care financial adviser — especially if the home is worth more than $500,000 or if your family is considering selling to fund the RAD. The cost of advice ($2,000–$5,000) is small relative to the potential fee savings. Look for advisers accredited by Aged Care Steps.
- Read our related guides on the means-tested care fee, couples rules, and RAD explained.