A downsizing dilemma

Yvonne has sold half of her block and wants to know if she can use the downsizer measure.

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Q. Yvonne
We own our house and currently receive the full Age Pension. We sold half our block to downsize but remain in the house block. Is this considered downsizing?

A. It is certainly considered downsizing, however, if you are asking whether it will allow you to make a downsizer contribution into you and your partner’s superannuation, this will not qualify.

The downsizer contribution measure is only available to people who are selling their principal place of residence that they have owned for 10 years.

If you were selling the block that contained your house, you would qualify for the measure and would be allowed to make a non-concessional contribution to super of up to $300,000, as would your partner.

However, because you are selling vacant land, the sale does not qualify.

One of the stipulations to be eligible for the downsizer measure is that the proceeds from the sale are exempt or partially exempt from capital gains tax (CGT) under the main residence exemption.

As you are subdividing the block, you would not be entitled to claim any CGT exemption.

The Australian Taxation Office states: “If you dispose of adjacent land to the same person and at the same time as you dispose of your main residence, the [CGT main residence] exemption extends to the adjacent land. 

“[The CGT main residence exemption] does not extend to adjacent land, however, if you dispose of the land separately from the main residence, e.g. you dispose of the adjacent land to the same purchaser but at a different time from when you dispose of the main residence or you dispose of the adjacent land and the main residence to different purchasers even if the disposals happen at the same time.”

The proceeds of the sale will be assessed under the assets test and will be deemed under the income test.

As always, when dealing with these issues, I would advise consulting with an independent financial adviser to ensure you receive the best advice on how to best handle the situation.

Have you subdivided a property as part of your attempt to downsize? Did it affect your pension payments?

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Written by Ben

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