Family Loan for Aged Care: 2026 Guide

By The Chipkie Team, Personal Finance Editorial Team  ·  Last updated 17 July 2026

Aged care costs in Australia are climbing steeply, and for many families the gap between what a parent can afford and what quality care actually costs is filled with private money. Whether it’s a refundable accommodation deposit (RAD), daily accommodation payments, or ongoing means-tested care fees, a family loan for aged care is one of the most common — and most emotionally charged — financial arrangements Australians enter into. Get the structure wrong and you risk sibling disputes, Centrelink complications, and real financial loss.

According to the ASIC MoneySmart guide on aged care, refundable accommodation deposits can exceed $550,000 in metropolitan areas, with some premium facilities charging over $1 million. That’s a figure large enough to reshape an entire family’s finances. This guide covers the legal, tax, and relationship dimensions you need to navigate before lending parents money for aged care — or borrowing from siblings to fund it.

Key Takeaways

• A family loan used to pay an aged care RAD or bond should always be documented in writing to protect every party and avoid Centrelink asset-test complications.
• Centrelink treats undocumented transfers as gifts, which can trigger deprivation rules and reduce the parent’s pension entitlements for up to five years.
• Interest-free family loans are common for aged care, but the ATO may scrutinise arrangements involving investment returns or trusts — get tax advice first.
• A RAD is refundable by the aged care provider when the resident leaves, so the loan agreement must specify who receives the refund and how repayment works.
• Without a clear aged care bond family agreement, sibling disputes over inheritance, repayment priority, and property sales can escalate quickly and expensively.

Why do families lend money for aged care in Australia?

Australian families lend money for aged care because the upfront costs often exceed what a parent’s liquid assets can cover — especially when the family home hasn’t been sold. Selling a home takes time, and aged care places can’t always wait. A family loan bridges that gap, preserving the parent’s pension eligibility while securing a quality facility placement.

The most common scenario involves one or more adult children pooling funds to pay the RAD — the lump-sum deposit that most residential aged care facilities require. According to the Australian Taxation Office, the average RAD across Australia sat above $380,000 in recent years, though inner-city and regional premium facilities regularly demand $500,000 or more.

Families typically lend in these situations:

• Home not yet sold: The parent needs to enter care immediately, but the property settlement is months away.
• Home retained: The family decides to keep the home (perhaps for another parent, rental income, or sentimental reasons), so the RAD must come from elsewhere.
• Means test strategy: The family structures the loan to reduce the parent’s assessable assets, potentially lowering ongoing means-tested care fees.
• Shared family contribution: Multiple siblings contribute different amounts, creating an internal lending arrangement that needs clear documentation.

What happens if you don’t document the loan properly?

An undocumented family loan for aged care can be reclassified as a gift by Services Australia (Centrelink), triggering deprivation provisions that reduce pension payments for up to five years. Without written terms, siblings may also dispute repayment priority when the parent dies and the RAD is refunded by the facility.

The consequences ripple further than most families expect:

1. Centrelink deprivation rules: If Services Australia determines money was gifted rather than lent, the gifting limits apply — currently $10,000 per financial year and $30,000 over a rolling five-year period. Amounts above these thresholds are “deprived assets,” counted as if the parent still owns them, which can reduce or eliminate Age Pension entitlements.
2. Estate disputes: When a parent passes away, the aged care provider refunds the RAD (typically within 14 business days). Without reverse family loan documentation — a written record specifying repayment terms and who is entitled to the refund — the money falls into the estate and is distributed according to the will. If one child funded the RAD but the will splits everything equally among four children, that child may recover only a fraction of their contribution.
3. Tax complications: The ATO can query whether an undocumented transfer was truly a loan or a distribution. This matters particularly if the funds came from a family trust or company, where Division 7A provisions may apply.

We consistently see this mistake across the agreements our users create: families assume goodwill will survive the stress of a parent’s decline. It rarely does without clear written terms. A well-drafted family loan agreement that can withstand legal scrutiny is not optional — it is essential.

How should you structure an aged care family loan agreement?

An aged care family loan agreement should specify the total amount, repayment triggers (such as RAD refund or property sale), interest terms (including if the loan is interest-free), and what happens if the parent dies before repayment. It must be signed by all contributing parties and ideally witnessed by an independent adult.

Here are the essential elements to include:

• Loan amount and date: The exact sum advanced and when it was transferred.
• Purpose restriction: State the funds are for aged care costs (RAD, DAP, or care fees) — this supports the loan’s legitimacy with Centrelink.
• Interest rate: Many families choose interest-free arrangements. If you do charge interest, ensure the rate is fair and commercially reasonable to avoid ATO scrutiny.
• Repayment trigger: Specify that repayment occurs when the RAD is refunded by the provider, or when the family home is sold — whichever comes first.
• Multiple lender provisions: If three siblings each contribute different amounts, document each contribution separately. State whether repayment is proportional or prioritised.
• Death and incapacity: Nominate an enduring power of attorney to manage the loan if the parent loses capacity. Clarify that the loan is a debt of the estate, repayable before distribution.
• Dispute resolution: Include a mediation clause. Family disputes over aged care finances can be devastating — a structured resolution process is far cheaper than litigation.

The agreement should be separate from the parent’s will and powers of attorney, though it should be referenced in estate planning documents. Provide a copy to the parent’s solicitor, accountant, and every contributing family member.

What are the Centrelink and tax implications of lending parents money for aged care?

A genuine loan — evidenced by a written agreement with repayment terms — is not counted as the parent’s asset by Services Australia for Age Pension or aged care means testing purposes. However, if the arrangement lacks documentation or has no realistic repayment plan, Centrelink may treat it as a gift and apply deprivation rules.

Key rules to understand:

• RAD and assets test: A RAD paid to an aged care provider is an exempt asset for Centrelink purposes — it doesn’t count in the pension assets test. But a loan from family used to pay the RAD is still a liability of the parent.
• Gifting thresholds: According to Services Australia’s published guidelines, gifts exceeding $10,000 in a single financial year (or $30,000 over five years) trigger deprivation provisions. A properly documented loan avoids this classification entirely.
• Interest income: If the family charges interest, the parent must declare interest payments as an expense, and the lender must declare interest received as income on their tax return.
• Division 7A: If a family company or trust provides the funds, strict Division 7A loan agreement requirements apply, including minimum interest rates and maximum terms set by the ATO.

Practical tip: Notify Centrelink in writing that the transfer is a loan, not a gift. Attach a copy of the signed agreement. This creates a contemporaneous record that is far more persuasive than explaining the arrangement retrospectively.

What happens to the loan when the parent leaves aged care or passes away?

When a parent leaves residential aged care — whether through transfer, recovery, or death — the aged care provider must refund the RAD, typically within 14 business days of departure. The family loan agreement should direct this refund towards repaying the contributing family members before any remaining funds enter the estate.

This is where many families face their most painful disputes. Consider this scenario:

1. Three siblings contribute $150,000, $100,000, and $0 respectively to fund a $250,000 RAD.
2. The parent dies two years later. The provider refunds $250,000.
3. The parent’s will divides the estate equally among all three children.
4. Without a written aged care bond family agreement, the $250,000 refund enters the estate and is split three ways — meaning the sibling who contributed nothing receives $83,333, while the sibling who contributed $150,000 recovers only $83,333 of their loan.

A proper agreement prevents this by establishing the loan as a debt of the estate, repayable in full before any distribution under the will. The executor is legally obliged to settle debts first. But if there’s no documentation, proving the debt becomes a costly exercise — often requiring Supreme Court involvement.

Our experience working with borrowers and lenders shows that families who address these scenarios upfront — uncomfortable as the conversation may be — almost always avoid the far greater discomfort of post-death disputes.

Can the aged care provider refuse to refund the RAD to a family member?

Yes. The provider is legally obligated to refund the RAD to the resident or their estate — not to a third-party lender. Your loan agreement should therefore direct the estate’s executor or the parent’s power of attorney to apply the refund towards repaying the loan immediately upon receipt.

Should the family loan be interest-free?

Most family loans for aged care are interest-free, which is perfectly legitimate for individual-to-individual arrangements. However, if funds come from a family trust or company, the ATO’s Division 7A rules require a minimum benchmark interest rate and a formal written agreement — interest-free is not an option in that structure.

Do I need a solicitor to draft an aged care family loan agreement?

You don’t legally need a solicitor, but the agreement must be comprehensive, signed, and witnessed. Tools like Chipkie allow you to create enforceable family loan agreements quickly, covering repayment terms, dispute resolution, and death or incapacity provisions — all the elements Centrelink and courts look for.

What if one sibling refuses to contribute to the aged care costs?

No Australian law compels adult children to fund a parent’s aged care. If one sibling won’t contribute, the lending siblings should document their contributions clearly and ensure the loan agreement establishes their priority claim on the RAD refund and estate, protecting their position without requiring the non-contributing sibling’s agreement.

How does this affect my own borrowing capacity?

Lending a parent $200,000 or more for aged care reduces your liquid assets and may affect your serviceability if you apply for a home loan. Lenders assess your full financial position — an outstanding family loan, even with an expected RAD refund, is not treated the same as cash in the bank. Factor this into your planning.

What’s the best way to protect your family through this process?

Aged care is one of the most financially and emotionally complex transitions an Australian family faces. A properly structured family loan for aged care protects the parent’s pension entitlements, gives contributing children a legal right to repayment, and prevents the sibling disputes that can fracture relationships permanently.

Start by having an honest family conversation. Then put the agreement in writing — every dollar, every condition, every contingency. Chipkie makes it straightforward to create a documented family loan agreement that holds up with Centrelink, the ATO, and in estate proceedings. Don’t leave your family’s finances and relationships to chance when a few hours of planning can protect both.

Disclaimer: The information provided in this article is for general informational purposes only and does not constitute financial, legal, or tax advice. Australian laws and lending criteria vary by state and territory and may change. Always consult a licensed financial adviser, solicitor, or conveyancer before entering into any financial arrangement or property purchase with another party.