Government incentives for older Australians are (sort of) thick on the ground. But are they as valuable as the government would like us to believe they are.
Take the downsizer contribution as an example. The aim of the scheme is to encourage older Australians to move out of their ‘too large’ homes and free up housing for younger families. The original statement from Treasury says the intent is “reducing barriers for older Australians to downsize from homes that no longer meet their needs”.
When the legislation was first introduced in July 2018, you had to be 65 to participate. That qualification was reduced to 60 in July 2022 and since 1 January 2023, eligibility starts at 55.
Read: Promised change to downsizer contribution gets government nod
But there’s a problem, according to YourLifeChoices members – actually, two problems. And they’re in addition to the impact extra funds in superannuation could have on any Age Pension payments.
YourLifeChoices members emphatically told us that age is not the hurdle preventing them from taking advantage of the scheme that allows them to stash $300,000 from the sale of the home in super – but do not count towards any of the contribution caps or the $1.7 million balance cap.
The major barriers are stamp duty on the purchase of a new home and a shortage of suitable smaller homes in their desired location.
This comment was typical: “We would certainly like to downsize, however the thought of giving between $50,000 and $65,000 to the government in the form of stamp duty is an absolute disgrace just for the act of moving home. They’re dreaming.”
Read: Age Pension payment rates
And this comment outlined the problem of housing availability: “And at the age of 55 or 60 we relocate where? A nursing home? Or try and find a suitable small home or unit in this current difficult market? It’s a good idea, but not so easy in practice.”
Another wrote: “If the government is serious, they will abolish stamp duty for genuine downsizers and remove the 10-year limit to accommodate those downsizers where there are extenuating circumstances.”
You can calculate the stamp duty on selling your home here, but given decades of price increases, it’s a red flag for many.
Taxation statistics from the Australian Bureau of Statistics (ABS) show a record high $24 billion was collected in stamp duty during 2020–21. Stamp duty accounted for more than 20 per cent of state and local government tax revenue in NSW and Victoria in 2021.
Read: New myGov app a ‘quantum leap’
In NSW, first home buyers are able to choose between paying a cheaper (in the short term) land tax or stamp duty, but that’s no use to older downsizers.
The downsizing debate comes with much baggage – in addition to stamp duty and suitable housing alternatives.
Also consider:
- Legal fees – payable on the sale and purchase of your home.
- Sales fees – for advertising, real estate commission and auctioneer costs.
- Preparing your home for sale – do you need to paint, replace carpet, hire furniture, refresh the garden?
- Building inspection report – a handy item in the sales package.
- Moving fees – even if you sort and pack yourself, you’ll no doubt need a professional removal service.
- Connection fees – you’ll need to get utilities established and set up before you move in.
Before you downsize, MoneySmart suggests you:
- Consult a legal professional to review sale contracts and oversee settlement.
- Get independent advice from a financial adviser about options for investing your sale proceeds.
- Ask the Services Australia Financial Information Service how it will affect your Age Pension or government benefits.
Should the government consider axing stamp duty for downsizers? Given stamp duty is collected by the states and territories, do you think that could ever happen? Why not share your thoughts in the comments section below?
An excellent and informative article. I would add that if a couple downsize then both parties can usually add $300,000 to their individual accounts.
My wife and I downsized to a Retirement Village. This suited us as we were both over 75 years. It saved us the stamp duty, but all the other charges apply, nevertheless it was a good relocation for us as there were no single level, small properties for sale in our preferred area.
One recommendation, read the fine print on the RV agreement carefully. Also, entry costs a lot of dollars and you lose around one third through deferred fees and refurbishment when you leave. This may be recovered in part if the (lease) value of the property increases, but do not view an RV as an investment, it is however, a great lifestyle though you pay for it.
Stamp duty was supposed to be eliminated by the GST, with the amount of of $24 Bill collected each year, there is no chance state Governments will make the necessary changes to stamp duty rules
For quite a few years I worked in a Commonwealth Government Department who’s client base was an aging part of the community. As they aged many had changing health and social needs. The Department looked at both the desire of these people to relocate (either for downsizing or more accessible health service providers), there was a general reluctance to change from the family home of many decades, which even when outdated still met their needs, to a newer, smarter and more convenient smaller residence.
Even at end of life, the preference was to pass away in the familiar home environment where family and friends were welcome to came and spend time in a known environment.
I would be very suspicious of any Government that is seeking to direct people where they may live when there is no identifiable physical reason to do so.
The social cost in relocating to a new area may have detrimental affects on the individuals concerned.
In my peer group, the majority have hobbies and home interests that take up what was once a bedroom or two and they do like to keep a bedroom spare for visitors to stay over and have some close time together. Something that may not be possible should they choose to move into a smaller dwelling.
Considering all aspects of selling up, finding a new more suited dwelling, shifting the possessions and memories and re-establishing to a new life, there will be costs that go beyond the financial and may lead to loss of quality of life.
Why would you want to do something that a Government is trying to force on you?
Well said!
I am looking at downsizing at the moment, doing my research as well as boxing up house contents.
I have worked it out, if I sell my 2 storie house , by the time I have deducted ALL fees to sell and buy including stamp duty, I will be paying about. $53,000, so I’ve got to get that amount extra on my sale price to get a decent single storie house, that will suit my needs.
We should get some sort of downsizing grant. I’m a baby boomer. and can’t manage my house maintenance any longer by myself, if my house was a single storie I wouldn’t even think of moving, it’s so stressful.