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Renting vs selling the family home for aged care

Last updated: 12 February 2026. This article is general information only and doesn’t consider your personal circumstances. Rules and thresholds can change. Always confirm details with Services Australia, My Aged Care and the Department of Health, Disability and Ageing before acting. Deciding whether to rent or sell the family home when entering residential aged care is one of the biggest financial (and emotional) decisions a family will make. It can affect cashflow, Age Pension outcomes, aged care fees, tax, and future flexibility — especially if a spouse is still living at home or may need care later. The part many families miss is this: Centrelink/DVA rules and aged care means assessment rules are different systems. The “best” answer is rarely a rule of thumb. It’s usually a structured trade-off between income, timeframes, liquidity and family goals.

Key takeaways (save this)

Centrelink care situation rule: if you leave your principal home due to illness and enter a care situation, Services Australia may exempt the home from the Age Pension assets test for 2 years from the date you enter care. After 2 years, the home may become assessable and you may be assessed as a non-homeowner.
Rental income counts: Services Australia states that lease or rent money you get from a property you own counts in your income test.
Aged care uses a separate means assessment: to work out residential aged care contributions, you need a means assessment (typically by Services Australia). The Department of Health explains the means assessment framework and confirms that a RAD counts as an assessable asset in the aged care means assessment.
Tax matters: if you rent a former home and later sell it, ATO main residence rules (including treating a former home as your main residence for a period) may affect CGT outcomes.
Rent vs sell often links to RAD vs DAP: selling can fund a larger RAD; renting can support ongoing DAP and preserve flexibility.
Most “good” decisions protect liquidity: avoiding rushed sales and avoiding being “asset rich, cash poor”.

If you want the broader “home rules” hub (including protected person concepts and what changes when circumstances change), start with: The family home when moving into care.

Start here: the question you’re really answering

“Rent or sell?” is usually shorthand for a bigger question: How do we fund care while keeping the family financially secure? In practice, the right decision depends on:

Who needs the home now? Is a spouse or other protected person still living there?
Funding urgency: do you need a lump sum soon (e.g. to pay a RAD) or can you manage daily costs (DAP + fees)?
Time horizon: is the stay likely short, long, or uncertain?
Flexibility: might the at-home partner later need care (the “second transition”)?
Risk tolerance: can the family handle landlord risk and administration right now?
Tax outcomes: what happens if you rent now and sell later?

Once you answer those questions, the rent vs sell decision becomes much clearer — and it’s easier to avoid “panic decisions” during a stressful move.

Two systems you must separate (Centrelink/DVA vs aged care means assessment)

Families get surprised because there are two parallel systems operating at the same time:

System 1: Centrelink/DVA (Age Pension and income support)

This system determines Age Pension eligibility and rate using the income test and assets test. It includes specific rules for a former home when someone enters a care situation.

Services Australia explains the 2-year exemption that may apply when a person leaves their principal home due to illness and enters a care situation.
The DSS Social Security Guide sets out the policy position that the former principal home remains exempt under the assets test for 2 years, and if the person has not returned after 2 years, they are treated as a non-homeowner and the home becomes assessable.

System 2: Residential aged care means assessment

This system determines what a resident contributes towards care costs and accommodation. The Department of Health explains that a means assessment is used to work out eligibility for government support and contributions, and it confirms that a RAD counts as an assessable asset in the aged care means assessment. Why this matters: the home (and what you do with it) can be treated favourably under one system while changing outcomes under the other. That’s why modelling is usually better than assumptions. If your situation includes unusual ownership, multiple names on title, trusts, or life interests, read: Complex home ownership & titles.

Renting the family home: benefits, risks and who it suits

Renting is appealing when families want to keep ownership but still generate income to help fund care. It can make sense when:

there’s uncertainty about how long care will be needed
the family wants flexibility to sell later (once decisions stabilise)
there’s a strategic reason to keep the home (future downsizing, family use, emotional preference)
selling now would be a rushed or low-leverage sale

Potential benefits of renting

Cashflow: rental income can help pay ongoing fees, DAP and everyday expenses.
Option value: you keep the right to sell later (possibly in a better market or with better preparation).
Less forced decision-making: buying time can reduce stress and improve outcomes for the family.

Risks and trade-offs of renting

Income test impact: Services Australia states that lease or rent money you receive from a property you own counts in your income test (which can reduce Age Pension in some cases).
Landlord risk: vacancies, arrears, repairs, damage, insurance claims — often when the family is already stretched.
Administration burden: property management decisions, compliance, maintenance, and record-keeping.
Tax complexity: rental income and CGT outcomes can change if you rent first and sell later (see tax section below).

If someone is acting under an Enduring Power of Attorney, renting a home can create ongoing decision-making obligations. This is worth reading early: Power of attorney and aged care.

Selling the family home: benefits, risks and who it suits

Selling is attractive when the family needs capital, wants simplicity, or wants to avoid landlord risk. It can make sense when:

a large lump sum is needed soon (e.g. to pay a RAD or create a strong buffer)
no spouse or protected person remains living in the home
there is no realistic intention to return to the home
the family wants to reduce stress and ongoing admin

Potential benefits of selling

Liquidity: sale proceeds can fund a RAD, reduce DAP exposure, and create a safety buffer.
Simplicity: removes property management and surprise repairs.
Clearer planning: cash/investments can be structured to fund predictable fees and living costs (with proper modelling).

Risks and trade-offs of selling

Emotional cost: selling can feel like “closing a chapter”, especially under pressure.
Market timing risk: rushed sales often reduce negotiation power.
Means testing impacts: converting the home into cash/investments can increase assessable assets and deeming under Centrelink in some cases.
Second-transition risk: if the at-home spouse later needs care, using most of the proceeds for a full RAD can reduce flexibility.

If you’re considering selling primarily to fund a lump sum accommodation payment, these two reads often save families money and stress:

Age Pension impacts: the 2-year rule, homeowner status and rental income

The 2-year exemption in a care situation

Services Australia states that if you leave your principal home due to illness and enter a care situation, your home may be exempt from the Age Pension assets test for 2 years from the date you enter care. Once the 2-year period expires, your home may be assessed as an asset and you may be assessed as a non-homeowner. The DSS Social Security Guide confirms the policy detail: the former principal home remains exempt under the assets test for a 2-year period in a care situation, and if the person has not returned after 2 years, the person is treated as a non-homeowner and the home becomes assessable.

Rental income and the income test

Services Australia states that lease or rent money you get from a property you own counts in your income test. This is one of the main reasons “renting” can improve cashflow while still reducing Age Pension in some cases. Practical adviser lens: renting can be a good strategy when you need income to pay fees — but you should expect it to change the Age Pension assessment. The size of the impact depends on the broader income and asset position.

Aged care fee impacts: why the home can behave differently

For residential aged care, a means assessment is used to determine what you contribute towards care and accommodation. The Department of Health explains the means assessment framework, and Services Australia typically issues the outcome/fee advice based on the information provided. Why rent vs sell matters: changing the home pathway changes the mix of assets and income (sale proceeds, rent, investments), which can flow through to means-tested contributions and fees. If you need the “fees picture” in plain English, these hub pages help:

Tax considerations: rental income and CGT on a former home

Rental income is taxable

If you rent out the home, rental income generally needs to be declared in your tax return and some expenses may be deductible. The ATO outlines how rental income and deductions work for individuals.

CGT when you rent a former home and later sell

The CGT question usually appears later: “If we rent it now and sell it later, what happens?” The ATO explains the rules for treating a former home as your main residence (including how the CGT main residence exemption can apply when you move out and rent it out for a period). Practical warning: CGT outcomes depend on timing, how long the property is rented, whether another property becomes the main residence, and individual circumstances. Before committing to a long rental strategy, consider getting tax advice.

How rent vs sell interacts with RAD vs DAP decisions

In the real world, “rent vs sell” is often driven by accommodation funding:

If you sell: you may be able to pay more RAD and reduce DAP exposure (but you also convert the home into assessable financial assets in many cases).
If you rent: you may choose a smaller RAD to preserve liquidity and cover DAP from income (rent + pension + investments).

Two companion reads are particularly useful here:

If you want this modelled properly (rent vs sell vs keep vacant, plus RAD/DAP and pension impacts), the fastest path is to run side-by-side scenarios using your actual numbers — and then choose the least-regret option for your timeframe.

Worked example (simple numbers)

Example only: these numbers are simplified to demonstrate the decision logic. They are not based on current thresholds and do not include all fees or caps. Always confirm current rules and get tailored advice before acting.

Scenario

Single person enters permanent residential aged care.
Home is empty (no spouse remains living there).
Room price requires either a larger RAD or ongoing DAP that would strain cashflow.
Family is deciding between renting (to generate cashflow) or selling (to fund a larger RAD).

Option A: Rent the home for 12 months, pay part RAD + DAP

Pros: generates income, avoids rushed sale, preserves option to sell later.
Cons: rental income counts in the income test; landlord/admin burden; DAP continues.
When it fits: uncertain time horizon, family wants flexibility, property is easily rentable.

Option B: Sell the home, pay larger RAD, reduce DAP

Pros: strong liquidity, lower ongoing accommodation payments, simpler administration.
Cons: cash/investments may become assessable; market timing risk; less flexibility if circumstances change.
When it fits: clear long-term care horizon, no protected person, family wants simplicity.

Decision lesson: the “best” option is the one that keeps cashflow stable and reduces irreversible moves until the bigger questions are answered (time horizon, spouse needs, and total means test impacts).

A practical decision framework

Use these questions to reach a decision faster and with fewer regrets:

Who needs the home? spouse/protected person, family use, future downsizing plan, or nobody?
How urgent is funding? can you manage DAP for 6–12 months or is it immediately unaffordable?
What’s the care horizon? short stay, long stay, or unknown?
Are you comfortable being a landlord right now? (risk, repairs, admin)
What is the likely tax outcome if you rent first and sell later?
What is the second-transition plan? if a spouse may need care later, what assets are reserved?

If releasing equity is being considered instead of renting or selling, read: Equity release & reverse mortgages for aged care.

Common mistakes we see

Assuming Centrelink and aged care treat the home the same way (they don’t).
Focusing on rental cashflow but ignoring the pension income test impact (rent counts as income).
Paying a full RAD after selling the home without keeping a buffer (creating a cashflow squeeze later).
Rushing a property sale during a crisis admission (often a poorer sale outcome).
Renting without a realistic admin plan (repairs and decision load can be heavy when a family is already stressed).
Not planning for the spouse-at-home scenario (two households must work).

Checklist before you decide

Confirm Centrelink/DVA home status: understand the 2-year care situation exemption and what happens after 2 years (including possible non-homeowner treatment).
Confirm rental income impact: Services Australia states rental income counts in the income test — expect a pension impact if rent is received.
Get the aged care means assessment underway: it determines contributions and helps avoid fee surprises.
Check tax basics: rental income obligations and the ATO guidance on treating a former home as the main residence for CGT purposes.
Decide RAD/DAP strategy alongside the home decision: start with RAD & DAP and RAD vs DAP.
If a spouse remains at home: protect their budget first. Read: Moving into aged care with a partner still at home.
Confirm legal authority: ensure the right person can sign and manage property decisions. Read: Power of attorney & aged care.

FAQs

Is the family home exempt from the Age Pension assets test when I enter residential care?

Services Australia states that if you leave your principal home due to illness and enter a care situation, your home may be exempt from the assets test for 2 years from the date you enter care. After 2 years, your home may be assessed as an asset and you may be assessed as a non-homeowner.

If I rent the home, does that affect my pension?

Yes, it can. Services Australia states rental income (lease or rent money) counts in the income test. Whether the home is exempt as an asset depends on your circumstances and timing.

Does renting or selling change aged care fees?

It can. Aged care uses a separate means assessment to determine what you contribute towards care and accommodation. Renting vs selling changes your asset and income mix, which can flow through to fees.

Is it usually better to rent first, then decide later?

Often, a staged approach can work well — rent for a short period while care needs stabilise and you confirm pension/fee impacts — then sell later if it becomes clearly optimal. The trade-off is landlord risk and the income test impact of rent.

What if we need a large lump sum quickly for a RAD?

If DAP is unaffordable and a large RAD is required, selling may be the simpler path — but it should be considered alongside the Age Pension and aged care means test impacts, and with a liquidity buffer retained.

What if there’s a spouse still living at home?

That changes everything. The priority becomes protecting the at-home spouse’s housing security and cashflow. Start here: Moving into aged care with a partner still at home.

What to do next

If you’re making this decision under time pressure, aim for a plan that is safe first, then optimised:

avoid rushed sales where possible
keep a meaningful cash buffer
model Centrelink and aged care outcomes side-by-side
choose a home strategy that supports your RAD/DAP plan and the family’s real timeframe

General advice only: This information is general in nature and doesn’t consider your objectives, financial situation or needs. Aged care and Centrelink rules can change—confirm details with Services Australia/My Aged Care or seek personal advice. If you want a clear rent vs sell comparison (including “keep vacant”), plus RAD/DAP and pension impacts mapped side-by-side, an online advice process can quickly turn uncertainty into a documented plan your family can act on.