How does selling the family home affect the Age Pension?

Will my Age Pension be affected by selling my family home or downsizing?

How does selling the family home affect the Age Pension?

How does selling the family home affect the Age Pension?
By the time you start considering retirement you may have substantial equity in your home. You may even own your house outright. Selling the family home is one way to free up cash for retirement. The money you receive can be invested in shares, term deposits, managed funds or superannuation.

In addition to finding a place to live, there are many financial, practical and emotional factors to consider before downsizing your home.

Your Age Pension entitlement depends on the value of your assets (the assets test) and the income you receive (the income test). Selling your home may affect the amount of Age Pension that you receive.

Your home and the two hectares surrounding it are not counted under the assets test. If you sell your home, the proceeds will be exempt for up to 12 months, as long as you are planning to use the money to buy another home. After the 12-month exemption period, the proceeds will be deemed under the income test.

Case study
Susan is 69 and divorced. She decides to sell the family home after her last adult child moves out because it is too big. She expects to sell the home for $900,000, buy a cheaper apartment closer to the city for $600,000, and have $300,000 left to invest.

Before she puts her house on the market, she goes to Centrelink and asks how the sale will affect her Age Pension. The Financial Information Service officer tells her that the $300,000 will be counted towards the assets test for her Age Pension. Even though this will reduce the amount of Age Pension that she receives every fortnight, Susan decides that she is still better off downsizing.

Alternatives to downsizing
Selling the home where your children were raised and leaving behind neighbours and friends can be difficult and stressful. Add to that the challenges of relocating to a new area, moving into a smaller space and making new friends and, suddenly, staying put might seem like a good idea.

Here are some possible alternatives to selling your home:

  • Converting your home to dual occupancy so you can live in one half and rent or sell the other half
  • Renting out some rooms through Airbnb; however, this has tax implications and may affect your Age Pension, so seek financial advice before you proceed
  • Considering a reverse mortgage if you need extra cash and have equity in your home – but make sure you understand the long-term risks
  • The Pension Loan Scheme is being revised and additional income up to 150 per cent of the Age Pension can be used as an alternative income stream instead of a reverse mortgage.

If you intend to stay in your house for the long term, you may want to renovate your home so that it's safe and easier to move around as you get older. The My Aged Care website has information on getting help to stay in your own home so you can maintain your independence for longer. 

What to do with your extra funds
After you've sold your house, you may have money to invest in other income-producing assets. There are lots of options available, so seek financial advice on the best mix of investment products for your needs.

Downsizing into superannuation
In the May 2017 budget, the Government announced that from 1 July 2018, if you are aged 65 or over and sell the principal residence that you have owned for at least 10 years, you will be able to make a non-concessional contribution to super of up to $300,000 from the proceeds. Couples will be able to contribute $300,000 each.

Non-concessional super contributions are payments you put into your super from your savings or from income you have already paid tax on. They are not taxed when they are received by your super fund.

The contribution will not count towards the non-concessional contribution cap or the $1.6 million balance test, and you will not need to meet the existing maximum age or work test rules. 

You can only make downsizing contributions for the sale of one home. You can't access it again for the sale of a second home.

Eligibility for the downsizer measure
You will be eligible to make a downsizer contribution to super if you can answer yes to all of the following:

  • you are 65 years old or older at the time you make a downsizer contribution (there is no maximum age limit)
  • the amount you are contributing is from the proceeds of selling your home where the contract of sale exchanged was on or after 1 July 2018
  • your home was owned by you or your spouse for 10 years or more prior to the sale – the ownership period is generally calculated from the date of settlement of purchase to the date of settlement of sale
  • your home is in Australia and is not a caravan, houseboat or other mobile home
  • the proceeds (capital gain or loss) from the sale of the home are either exempt or partially exempt from capital gains tax (CGT) under the main residence exemption, or would be entitled to such an exemption if the home was a CGT rather than a pre-CGT (acquired before 20 September 1985) asset
  • you have provided your super fund with the Downsizer contribution into super form either before or at the time of making your downsizer contribution
  • you make your downsizer contribution within 90 days of receiving the proceeds of sale, which is usually at the date of settlement
  • you have not previously made a downsizer contribution to your super from the sale of another home.

Note: If the home that was sold was only owned by one spouse, the spouse that did not have an ownership interest may also make a downsizer contribution, or have one made on their behalf, provided they meet all of the other requirements.

Requesting an extension of time for downsizing contributions
You may be able to request a longer period for making a downsizer contribution in some circumstances, for example, where a delay has been caused by factors outside your control. An extension of time will not be granted to allow you to meet the age requirement.

An extension of time should be requested before the 90-day period from the date of settlement has expired.

However, if you have overlooked the 90-day time frame, an extension of time may be granted due to but not limited to:

  • ill health
  • death in the family
  • moving house.

Case study
Gertrude is 75 and decides to sell her family home of 15 years. Settlement occurs on 1 April 2019. She purchases a new home in a retirement village which is due to settle on 1 June 2019.

The retirement village has only just been built and Gertrude’s settlement is delayed until 1 August 2019 while final council approvals are obtained.

Gertrude does not want to contribute funds from the sale to her super until after the settlement of her new property to ensure she has enough money to purchase and move into the property.

Upon her request, the Australian Taxation Office gives Gertrude an extension of time to contribute until 1 October 2019. This extension allows Gertrude enough time to settle on the new property and make a contribution of the remaining money from her sale.

Gertrude can afford to contribute the maximum $300,000 to her super fund after the sale and makes this on 24 September 2019.

What happens if your downsizer contribution is not eligible?
If the Australian Taxation office becomes aware that your contribution does not meet the downsizer contribution eligibility requirements, you will be notified and so will your super fund.

Once notified, your fund will assess whether your contribution could have been made as a personal contribution under the contributions acceptance rules.

If your contribution could be accepted, the amount will count towards the relevant contribution cap.

If your contribution can't be accepted, the contribution amount will be returned to you by your super fund.

False and misleading penalties may be applied if the Australian Taxation Office identifies that your downsizer contribution was not eligible and you had incorrectly declared that you were eligible to make such a contribution.

To make the most of your money in retirement, first you need to know the rules. The PensionChecker™ tool has all the information you need.





    COMMENTS

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    Heather
    29th Mar 2019
    11:21am
    We are downsizing and should be hopefully left with approximately $200,000. My husband is 67 and has no super. I am 60. Should we put most of this in my super as I don’t have much. Would I have to pay tax on it or should my husband be doing something with it as he is over pension age.
    Blinky
    29th Mar 2019
    12:04pm
    Heather. Talk to someone in a super fund about opening an "income stream account" this means they may give an income of 5% per year i.e. $10 k. This should not affect your pension. Also, talk to s centreling finsncial information officer, they are usually really good.
    If you keep the money in the bank or invest it, it will count towards your asset test, that's no good as it will reduce your pension.
    almost a grey hair
    29th Mar 2019
    2:05pm
    If 200K is all you will have then its not going to make a difference to either pension as a home owning couple can have up to $375k before pension affected.
    you will be entitled to a pension at about 67 , 7 years is a long time to be living on half the couple rate, If you were actively seeking employment or are prepared to do voluntary work at 30 hrs a f/n then you may put in a claim for Newstart. However if you take out an allocated pension with periodic payments then Centrelink class this as income and your Newstart will be reduced accordingly. I will be doing this personally myself when the time comes. Talk to FIS at Centrelink before you do anything rash.
    East of Toowoomba
    29th Mar 2019
    11:46am
    Heather, have just done this ourselves actually, neither of us is on age pension and neither is age pension age. My super fund advised we can all make $100K non concessional contribution every year for up to 5 years or a lump sum non-concessional contribution of up to $300K using the bring forward rule, once every 5 years.

    Check with your super fund if they will permit a non-concessional contribution as they all vary with what they can and can't do. Bear in mind that it must be noted as a non-concessional contribution so that it isn't taxed.
    Greg
    29th Mar 2019
    4:17pm
    Just to keep the fasts correct for you and others who may read this - the $100,000 per year non-concessional contribution is over 3 years (not 5 years), that's why it's $300,000 total.

    And that's under age 65 with super balance of less then $1.4 million, there's a couple of other tiers too, have a look at the ATO page for details:-

    https://www.ato.gov.au/Super/Self-managed-super-funds/Contributions-and-rollovers/Contribution-caps/
    McDaddy
    29th Mar 2019
    12:39pm
    Heather if you put it in your Super it won’t impact husbands Age Pension.
    McDaddy
    29th Mar 2019
    12:39pm
    Heather if you put it in your Super it won’t impact husbands Age Pension.
    Sundays
    29th Mar 2019
    3:18pm
    Talk to a Centrelink financial adviser. If you put it into your super it will not be counted in the Asset test by Centrelink until you reach Pension age. Check with your fund first regarding tax.
    Pension expert
    29th Mar 2019
    7:52pm
    "Your home and the two hectares surrounding it are not counted under the assets test. If you sell your home, the proceeds will be exempt for up to 12 months, as long as you are planning to use the money to buy another home. After the 12-month exemption period, the proceeds will be deemed under the income test."
    The "indexed" comment above is why you should talk to a FIS officer and not read articles that get this simple stuff wrong. You get a 12 month exemption from an asset test - THE INCOME TEST applies immediately. That is - the deemed (or presumed income) from having money in the bank.
    Cowboy Jim
    31st Mar 2019
    8:31am
    Right - as long as the 2 hectares are not zoned housing land. Was in that position with just under 1 hectare of land. City Council showed me what could be done with the lot and came up with 11 house blocks. Was charged rates accordingly and I put it up for sale. So the land surrounding your place being free from the asset test. Bush block is OK obviously.
    Heather
    31st Mar 2019
    10:40pm
    Thank you for all your helpful comments.
    Bully4u
    26th Jun 2019
    11:10am
    An alternative to selling , there is another option called Homesafe an equity release product that gives you a lump sum of cash for a share of the future sales proceeds of your home