Australian retirees encouraged to downsize from the family home

Alison Banney 18 December 2017 NEWS

Pre-retiree 738

The Government will allow retirees to sell their homes and divert the proceeds to their superannuation.

From 1 July 2018 Australian retirees will be able to sell their family home and add the proceeds of the sale to their superannuation balance. This downsizing measure was initially proposed in the 2017 Federal Budget in May and is a way to tackle Australia's growing housing affordability crisis.

The measure will allow Australians aged 65 or over to sell their family home and divert up to $300,000 into their superannuation as a non-concessional contribution. The home must be your primary place of residence (not a holiday home) and you must have lived there for at least the previous 10 years.

The $300,000 cap applies per person not per property, meaning a couple can divert up to $600,000 from the sale of their home into their super balances. However, you cannot divert more than what is earned by selling your home, meaning if your home sells for $400,000 that's the maximum you can contribute to your super.

Currently, there is a limit as to how much money Australians can contribute to their superannuation in non-concessional (after tax) contributions. This is capped at $100,000 a year for people with balances under $1.6 million. However, this downsizing measure will allow retirees to contribute up to $300,000 in one year following the sale of their home.

The reasoning behind this measure stems back to the housing affordability crisis. The Government hopes this incentive encourages older Australians to leave their large city homes, ultimately freeing up supply for younger Australians who are struggling to enter the market. Previously, there was little incentive for retirees to leave their family homes.

However, the superannuation industry is sceptical that this measure will have any real impact on housing supply. One reason for this is that any money you add to your superannuation from selling your home will be subject to the Age Pension Test. This means that by adding more money to their superannuation, some retirees could potentially forfeit their Age Pension.

Back when the measure was initially announced in May, Superfund Partners director Mark Beveridge said, "It is doubtful that the incentive of putting money into superannuation free of the thresholds will be the motivating factor in downsizing. For an average couple on the age pension with say $550,000 in assessable assets, there is no incentive at all for them to downsize and put money into superannuation because it means they immediately lose all their age pension."

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