Summary:

For over 65s, there will be tax incentives to downsize your home from July 1
When downsizing, proceeds can be contributed to superannuation at reduced costs
It might still be better to keep your home, so consider carefully before selling

Faced with a housing shortage, governments have recently taken efforts for encourage older citizens to downsize from family homes they no longer need once their kids have moved out. But most aren’t doing so - current pensions rules encourage seniors to maintain large homes or be disadvantaged under the assets test - so recent changes to superannuation rules will give some advantages to downsizers.

Soon, if you sell your family home and meet certain criteria (including being over 65 and owning the house for at least 10 years) you can contribute the proceeds of the sale to your superannuation fund without it counting towards superannuation caps or the total balance test for that year, up to a maximum of $300,000. This will allow to you sell your home while avoiding significant tax when you contribute this money to your superannuation. Because it’s your main residence you will also be exempted from capital gains tax. For those looking to downsize, these new rules will be quite advantageous.

There are some restrictions: it will still count towards the total superannuation balance and transfer balance cap ($1.6 million), you can only do this once in your life, and the sale has to be made after 1 July 2018. If you receive a pension from the government this will also count towards your assets test, and may reduce your pension, although any money you use to buy a smaller house will continue to be exempted.

For these reasons you’ll want to consult a professional to work out whether downsizing will be financially advantageous.

The information contained in this blog is general in nature and does not take into account your personal circumstances. You are advised to seek independent advice from a Financial Adviser before acting on any information contained herein.