Budget 2022 fine print: Big wins for homeowners
Money gained from the sale of your home has some lucrative superannuation concessions attached. But these so-called ‘downsizer’ rules previously only applied to those aged 65 or over.
This changed on 1 July when the qualifying age was reduced to 60.
During the May Federal Election campaign, both major parties promised to further lower the qualifying age to 55. This legislation is awaiting approval by the Senate, so it’s imminent.
But there are another two changes in Treasurer Jim Chalmer’s first budget announced on 25 October. And both changes could provide a significant boost to those who are thinking of selling their family homes. The first change relates to asset test exemptions, the second offers a more generous income assessment. Both changes are still subject to the passage of legislation.
Asset test exemptions
For those on a full or part Age Pension, the sale of a home can mean a major increase to assets, temporarily, until a new home is purchased or the funds are used otherwise. Traditionally, there was an exemption on counting these funds as assets for a period of 12 months. That has now been doubled to 24 months, following the sale of a principal dwelling, which gives you more time to repurchase, build or otherwise invest this money without threatening your pension entitlements.
Deemed income on sale proceeds.
The assets are deemed to earn income for the period of time that you are holding the extra funds from the sale of your home. If you are on a full or part Age Pension, the deeming rate used is the lower rate of just 0.25%. The time for this lower rate to be applied is now also increased to the 24 months post-sale. Again, this means you are less likely to lose too much pension income during this time, perhaps also gaining space to reconsider accommodation options more slowly.
Downsizer legislation refresher
We mention above that this legislation is about to be available to those aged 55 and over. But how does it work?
The ‘downsizer’ legislation means you can make a one-off superannuation contribution post tax up to $300,000 per individual. The money must come from the sale of your principal residence. There are other conditions also attached, described here.
It’s also worth noting that you don’t need to actually ‘downsize’ to make these contributions – they can be used if you upsize, or right size or move to any other size dwelling.
To date nearly 50,000 Australians have taken advantage of this legislation and now it is available to younger retirees, it is expected this number will increase quickly. The legislation lowering the age to 55 has passed the House of Representatives and awaits approval from the Senate. As this was bi-partisan policy, that is expected to happen soon. It can then become law in the quarter following Royal Assent.
Using your home equity
Would unlocking the equity in your family home give you a more comfortable retirement? Downsizing is one obvious option, but there are others. Accessing part of the equity using a Federal Government or private scheme is another. If you would like to consider the pros and cons when all the rules are applied, you could benefit from an advice consultation.
You can find out more or book a consultation below.
Your column and answers to questions are really very helpful thank you. Our financial adviser has recently had to change employer and is not able to answer simple questions because fee structure would disadvantage us financially, she says. We have had to wait (and still are) for over 4 months for a change in circumstances on sale of land and paying off a home mortgage for a determination by Centrelink, during which the pension has been nearly halved! We have now signed on with you for advice on our next steps in downsizing. It would be interesting to know whether a back payment of pension foregone will be paid out to us when they have processed the change! The Centrelink account is frozen till they have processed it. Would it speed things up if we were to go in and visit them? Looking forward to making an appointment with you once this step is completed and we sell the home.