This guide explains general concepts for educational purposes. It is not financial, tax or legal advice, or a recommendation to buy, sell, hold or change a financial product or strategy. It does not take into account your objectives, financial situation or needs. Rules, caps, thresholds and product terms can change. Check the current official information and obtain advice appropriate to your circumstances before making a financial decision.
The home and the sale proceeds are treated differently
Your principal home is generally exempt from the Age Pension assets test while you live in it. Once it is sold, the proceeds may become assessable unless a temporary exemption or another specific rule applies.
That difference means a sale can affect Age Pension entitlement even when your overall sense of wealth has not changed. The timing of settlement, the purchase of a replacement home and how surplus proceeds are held all matter.
- Expected sale price and selling costs
- Cost and timing of the replacement home
- Amount likely to remain after the move
- How proceeds will be invested or spent
- Possible eligibility for the downsizer contribution rules
Downsizing is a lifestyle decision first
Age Pension consequences should form part of the analysis, but they should not drive the decision in isolation. The suitability of the new home, ongoing costs, access to family and services, and the amount of capital released can be more important over the long term.
A coordinated plan can compare the expected cash flow and asset position before and after the move, then consider superannuation, investments and Centrelink together.
Transaction timing
Contribution eligibility, settlement timing and Centrelink reporting can be time sensitive. Obtaining advice early creates more opportunity to compare options and avoid decisions that are difficult to reverse.
The amount released is different from the sale price
Selling costs, the replacement property's price and moving expenses determine how much money remains available. A smaller home does not necessarily produce a large surplus, particularly when the move is to a more expensive location. The ongoing budget may also change through strata levies, maintenance, insurance and transport costs.
Retirement projections can separate the housing transaction from the income produced by any remaining capital. This makes it possible to see the effect of the move on both everyday spending and longer-term savings, rather than treating the entire sale price as money available for retirement.
Super and Centrelink use different tests
A downsizer contribution is a superannuation contribution category with its own eligibility conditions. It does not mean that the amount contributed will automatically be exempt from Centrelink assessment. The owner's age, the type of super account and whether an income stream has started can affect social security treatment.
The temporary treatment of money intended for another principal home also differs from the treatment of surplus proceeds. The intended use of the money and the relevant dates therefore form part of the assessment. Current rules and the actual transaction need to be considered together.