PART TWO Your home, your retirement:
1 January changes to deeming and downsizing
Last week we covered the new 1 January rules for downsizing and super.
This week we are looking at the way downsizing is treated within the Centrelink means test.
This is a very different scenario as whilst generous super concessions can apply to a downsizing surplus or profit, Centrelink will still take such funds into account.
The good news is that whilst you previously had just 12-months’ grace before this money was viewed as an asset, things have changed. As of 1 January, the exemption for downsizing funds is now two years. Put simply, you can ‘park’ this money in an appropriate account and it will not be included in any assets assessment for your Age Pension eligibility.
Income test assessment on the proceeds of downsizing has also changed. As of 1 January this year, the deeming rate on this portion of your savings will be the lower rate, 0.25%. As with other useage of deeming rates, these rates are frozen until June 30, 2024. So with savings accounts and term deposits now paying 5% interest (and sometimes more), the deemed income assessment for downsizing funds is very favourable compared to what you might actually have earned.
Minister for Social Services, Amanda Rishworth, noted at the time that the bill was passed that these measures will give retirees more time to buy, build, repair or renovate their new primary residence. Given delays in construction since the Covid pandemic first hit in early 2020, the legislation will hopefully release pressure on those dependent upon the building trades.
The 1 January change is not entirely altruistic. Policymakers see one of the ways of easing the severe shortage of housing stock is to encourage older homeowners to downsize and free up larger homes for younger families, cutting the waiting times for new builds.
Perhaps this legislation is that rare beast – a win-win solution for all generations?
What do you think?
Are initiatives such as these likely to make you view downsizing more favourably? Or are you like many retirees who proudly declare, ‘They’ll carry me out in a box!’
Do you need support to do the sums on whether downsizing will work for you?
One of our advisers can help step you through the specific rules and forecast how well such a strategy might work for you.