As the issue of housing affordability circles back into the Australian mainstream, so does the push for older Australians to downsize. Why? Because many of us want smaller homes in our retirement years, and the move would produce a number of larger properties for families to move into.

Historically, those looking to downsize have been presented with a number of roadblocks. Firstly, although the home’s value is exempt from the pension assets test, the equity produced by selling the property is not. Additionally, if the money falls into an income-bearing account, any interest produced will be taxed, when capital gains on a primary place of residence isn’t.

On top of this, even if you’re moving to a smaller property, you’ll still have to pay stamp duty and moving fees.

The government is working to reduce some of these problems, however, by producing a Superannuation Downsizers Contribution Scheme, which provides senior Australians selling their homes the option to put up to $300,000 each into superannuation. This way, the money can be used more efficiently towards their retirements, without getting hit for tax.

What is the Superannuation Downsizers Contribution Scheme?

The downsizers scheme applies to anyone over the age of 65 that’s selling a property which falls under the following categories:

  • In Australia
  • A primary residence
  • A house or unit with up to 2 hectares of land (excluding mobile homes and house boats)
  • At least one of the contributors has owned the property for 10 years or more

The downsizers scheme is relevant to anyone who’s signed a contract on or after 1st July 2018.

If a property is joint-ownership, both of the owners can make a $300,000 contribution if they’re over the age of 65. The contributions don’t both have to be the same, as long as neither party’s contribution exceeds $300,000. For example, if you sell a home for $500,000, you can both make contributions of $300,000 and $200,000, but not $400,000 and $100,000.

Any contributions made will count towards the total superannuation balance cap, which is currently set at $1.6 million. This will also affect your Age Pension eligibility.

You can still make contributions if you’re retired, as the work test doesn’t apply. If you’re still working, there are non-concessional contributions you can make up to $100,000, as the downsizers scheme doesn’t count towards it.

Will Australians Benefit from the Downsizers Scheme?

It’s unclear as to whether the new scheme will successfully encourage senior Australians to downsize their properties, as it fails to address the costs associated with physically moving, as well as stamp duty.

On top of this, it doesn’t tackle the underlying reasons why people are reluctant to move, such as emotional attachment to a property, lack of suitable housing and wanting to be close to their friends and family. If a holistic approach to property was introduced, senior Australians would feel more comfortable moving to a smaller property, making larger properties available to those who need them.

The information and links provided on this website are for general information only and should not be taken as constituting professional advice. This information does not take into account the financial situation or particular needs of individual readers. Before making any decisions about matters discussed on this website, you should consider whether it is suitable for you in light of your own circumstances, and seek appropriate advice.