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A recently introduced Bill has shone a spotlight on the treatment of principal home sale proceeds that are intended to fund a refundable deposit. This article explores the current rules and outlines a proposed legislative change that, if enacted, could create a clear distinction between the social security and aged care rules.
Importantly, the proposed amendments discussed in this article are not yet law. The Aged Care Legislation Amendment (Aboriginal and Torres Strait Islander Aged Care Commissioner and Other Measures) Bill 2026 is currently before the House of Representatives and remains subject to the parliamentary process.
The principal home sale proceeds exemption1 allows sale proceeds that are intended to be used to purchase, build, rebuild, repair or renovate a new principal home to be exempt from the social security assets test for a period of up to 24 months. This can be extended to up to 36 months in certain circumstances. The person will continue to be assessed as a homeowner during the exemption period.
The exemption starts from the date of settlement and ends at the earlier of:
Although an assets test exemption applies to these sale proceeds, they are subject to deeming for income test purposes. Only the lower deeming rate (currently 1.25%) will be applied to these sale proceeds for the duration of the assets test exemption.
Prior to some recent clarifications, prevailing interpretation based on the legislative framework in place indicated that the principal home sale proceeds exemption could be lost in some circumstances. Vacating the principal home to enter residential aged care and using the sale proceeds to pay a refundable deposit was generally considered inconsistent with an intention to purchase, build, rebuild, repair or renovate a new principal home.
However, a subsequent update to the Guide to Social Security Law clarified that the exemption is applicable where principal home sale proceeds are used to pay a refundable accommodation deposit (RAD) upon entering residential aged care. The clarification recognises that entering residential aged care does not necessarily mean the relevant requirements of the sale proceeds exemption are no longer satisfied. As a result, a person entering residential aged care does not automatically lose access to the sale proceeds exemption.
The definition of principal home sale proceeds in 4.6.3.90 now includes the following:
“funds from the sale of the person’s property that are intended to be used to purchase a place in a residential aged care service via a refundable accommodation deposit (RAD).”
Similarly, this is now also reinforced in 4.6.3.70 (principal home exemption in care situation) where it states the following:
“Where a single pensioner sells their home while in a care situation, the sale proceeds provisions may apply, as long as all the requirements of those provisions are met, that is, they have an intention to apply some or all of the sale proceeds to the purchase of a new principal residence, meet the statutory timeframes, etc. This can include the purchase of a Refundable accommodation deposit (RAD) in a residential aged care service.”
The current aged care means assessment broadly relies on social security concepts when determining the value of a person’s assets with a few exceptions, for instance the value of the former home.
The proposed amendment provides that the social security principal home sale proceeds exemption is not applied when working out the value of a person’s assets for aged care means testing purposes to the extent that the sale proceeds are intended to be used to pay a refundable deposit. This treatment aligns with the existing rule where a refundable deposit is an assessable asset for aged care means testing assessment.
The proposal would create a clear distinction between:
Social security assessment, where the sale proceeds exemption would continue to apply, provided the relevant criteria are met, including the intended use of the sale proceeds to pay a refundable deposit.
Aged care means testing, where the proposed aged care amendment would prevent those same sale proceeds from being disregarded to the extent they are intended to fund a refundable deposit.
Amanda sells her principal home for $900,000 with the intention of buying another home closer to where her daughter lives. Unfortunately, Amanda had a fall before she could buy another home and has to enter a residential aged care facility. With the change in Amanda’s circumstances, she now intends to use those sale proceeds to pay a RAD.
For the assessment of Amanda’s Age Pension, she continues to receive the exemption for the sale proceeds even after having to enter a residential aged care facility.
For the assessment of Amanda’s aged care fees, the proposed amendment would prevent the principal home sale proceeds intended to be used to pay the RAD from being disregarded.
While the DSS clarification confirms that the principal home sale proceeds exemption may continue to apply for social security purposes where sale proceeds are intended to be used to pay a refundable deposit, advisers should be aware that the position may differ for aged care means testing if the proposed legislative change is enacted.
Until the Bill becomes law, the existing rules continue to apply.
