When clients enter a residential aged care facility, advisers are often required to navigate a complex interaction between social security and aged care rules, particularly when considering the treatment of principal home sale proceeds if sold.

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.

Current principal home sale proceeds exemption rules

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:

• the new principal home being purchased, built, repaired or renovated
• the intention to apply the sale proceeds to purchase, build, rebuild, repair or renovate a new principal home being ceased
• 24 months (or 36 months where extension is granted) being passed.²

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.

Does the social security exemption continue to apply when moving into residential aged care?

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.”

Does the social security treatment extend to aged care means testing?

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.

Example

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.

1 For homes sold prior to 1 January 2023, refer to the Guide to Social Security Law.

The information in this article is current as at 1 August 2026 unless otherwise specified and is provided by Challenger Life Company Limited ABN 44 072 486 938, AFSL 234670 (Challenger, our, we), the issuer of the Challenger annuities (Annuity(ies)), the issuer of CarePlus Annuity and CarePlus Insurance, together referred to as Challenger CarePlus and Challenger Retirement and Investment Services Limited ABN 80 115 534 453, AFSL 295642 (CRISL). The information in this article is general information and is intended solely for licensed financial advisers or authorised representatives of licensed financial advisers, and is provided to them on a confidential basis. It is not intended to constitute financial product advice. This information must not be distributed, delivered, disclosed or otherwise disseminated to any investor, without our express prior approval. Investors should consider the applicable Annuity Target Market Determination (TMD) and Product Disclosure Statement (PDS) available at challenger.com.au and the appropriateness of the applicable product to their circumstances before making an investment decision. This information has been prepared without taking into account any person’s objectives, financial situation or needs. Neither Challenger and/or CRISL, nor any of its officers or employees, are a registered tax agent or a registered tax (financial) adviser under the Tax Agent Services Act 2009 (Cth) and none of them is licensed or authorised to provide tax or social security advice. Before acting, we strongly recommend that prospective investors obtain financial product advice, as well as taxation and applicable social security advice, from qualified professional advisers who are able to take into account the investor’s individual circumstances. Each person should, therefore, consider its appropriateness having regard to these matters and the information in the TMD and PDS for the applicable Annuity before deciding whether to acquire or continue to hold the product. A copy of the TMD and PDS is available at challenger.com.au or by contacting our Adviser Services Team on 13 35 66. Any examples shown in this article are for illustrative purposes only and are not a prediction or guarantee of any particular outcome. Age Pension benefits described in this article will not apply to all individuals. Age Pension outcomes depend on an individual (or couple’s) personal circumstances and may change over time. This article may include statements of opinion, forward looking statements, forecasts or predictions based on current expectations about future events and results. Actual results may be materially different from those shown. This is because outcomes reflect the assumptions made and may be affected by known or unknown risks and uncertainties that are not able to be presently identified. Challenger and CRISL relied on publicly available information and sources believed to be reliable, however, the information has not been independently verified by Challenger and CRISL. While due care and attention has been exercised in the preparation of this information, Challenger and CRISL gives no representation or warranty (express or implied) as to its accuracy, completeness or reliability. The information presented in this article is not intended to be a complete statement or summary of the matters to which reference is made in this article. To the maximum extent permissible under law, neither Challenger, CRISL, nor its related entities, nor any of their directors, employees or agents, accept any liability for any loss or damage in connection with the use of or reliance on all or part of, or any omission inadequacy or inaccuracy in, the information in this article.

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