Scheme to encourage older Australians to downsize

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As part two of Scott Morrison’s attack on housing affordability, a scheme to encourage older Australians to downsize will be introduced. From 1 July 2018 Australians aged 65 and older will be able to make a non-concessional contribution of up to $300,000 into their superannuation from the proceeds of the sale of a family home.

How will this work?

Helping George and Jane downsize

George and Jane, both retired and aged 76 and 69, sell their home in which they’ve lived for more than 10 years to move into more appropriate accommodation. The proceeds of the sale are $1.2 million. They can each make a non-concessional contribution into superannuation of up to $300,000 from the sale proceeds ($600,000 in total), even though Jane no longer satisfies the standard contribution work test and George is over 75. They can make these special contributions regardless of how much they already have in their superannuation accounts.

Case study source Commonwealth of Australia, 2017.

Opinion: Seller beware – there’s a catch

The Budget documents state that this measure will ‘free up housing stock’ particularly ‘larger homes for younger families’.

But seller beware!

Debbie and I did the sums in the budget Lockup and think this policy clearly assists the budget bottom line in significant ways. The sale of more retirees’ homes will increase stock and the lower the price of homes, thus easing the housing affordability squeeze. However, as in the example of George and Jane, if they sell their home for (net) $1.2 million, then put $600,000 into super, it may assist the Budget, but they will probably be worse off.

How so?

Well we assume that the property is owned outright and the other half of the proceeds of the sale are used for a new dwelling which would be a considerably smaller property, perhaps in a less salubrious neighbourhood. If they have an ‘average’ couples’ super balance, they probably already had around $300,000 in super. So, their new super balance they probably already had around $300,000 in super. So their new super balance is $900,000 (after half the sale amount is included) and this means they will not qualify for an Age Pension as they exceed the asset threshold for part Age Pensions. If they had not sold the family home, its value would be exempt from the asset test and they would receive an Age Pension.

So without any form of Age Pension at all, they will be forced to live on the earnings from their $900,000 balance. Drawing down the minimum of four per cent, they will have $36,000 per year to live on, compared to the full Age Pension they might have had, pre-sale, of $34,820 including supplements but with only the balance of proceeds ($600,000) to spend on what will have to be an inferior home, perhaps in a less desirable neighbourhood.

So make sure you do your sums very carefully, and check them with a qualified financial professional, before you put your home on the market. 

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Written by Kaye Fallick

76 Comments

Total Comments: 76
  1. 0
    0

    So many assumptions being made here and everyone of them of course on the negative side. Why no mention of the tax saved? That tax amount would likely be more than the writer’s $800 difference they claim. And frankly I don’t care. If you have almost a million dollars in super then you should NOT be getting a pension in the first place. This is exactly why we have elderly people no longer able to maintain their homes that are worth millions and yet are able to apply for the pension making them asset rich but income poor. This is plainly wrong.

    If you want the tax concessions on selling the family home (and people here did want that) and to get it you put the excess money into super, then live on it! That is exactly what super is for. After about three years the super account may have dropped enough for a part pension to be claimed so just what is the issue. None except for greed yet again raising its head.

    And this is not to forget that no on will be FORCED to sell in the first place.

    • 0
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      As I understand it the savings on tax will only occur if the seller already has superannuation to add money to, if they do not have superannuation they will be greatly disadvantaged by selling their house and down sizing, many folk in their 80s and 90s do not have superannuation and do not want to move from their home of 50 odd years.
      As for the aged not being forced to sell that could come in time as governments of all parties are unreliable when it come to keeping their promises.

    • 0
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      Simple answer – you give all the pension and then reduce it at the same rate dollar to dollar as pensions are from receiving income.

      The top returning super fund returned 7.6% in 2106 to 30 June – ‘deeming’ rates would mean a person in receipt of that return would receive a miniscule pension as a top-up…

      On a million bucks that is $76,000 – below the cut-out point for a couple. It seems inequitable that some should be permitted to earn more than pension rate when OAP pure retirees have no means of earning extra, but that is a big issue and needs a full airing.

      I think what you are suggesting, KSS – is that such recipients should be cut off at the current level of pension = $19,448 single, $34,819 for a couple, rather than being given a handout from pension funds as well as already receiving more than pension.

      Which ever way you look at it – the end result will not please any or most.

    • 0
      0

      Downsize your property so that the rich land developers can make a huge profit selling to those wealthy young folk that need to access their super savings to buy. Once again this deal benefits the wealthy in the end. It’s a win win for the rich once again.

    • 0
      0

      If you don’t have land developers jackie, who will open up land for housing? Governments and councils have walked away from land development as they find it easier to impose taxes and charges on developers. Naturally, developers will pass on those taxes and charges as they, like all businesses, are there to make a profit. If you want to complain about the cost of vacant land, complain to your local council and ask them to reduce the costs to developers and release more land. A lot has been said about values in Sydney and Melbourne but when all is said and done, it’s a case of supply and demand.

    • 0
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      I like your thinking KSS.

      Autumn if you are in your 80s-90s & can live comfortably don’t sell its your choice.

      I do have a question though & maybe you guys can answer it for me?

      If you can sell your house & put $300,000 single person or $600,000 a couple into super tax free that’s quite a savings isn’t it?
      Now if you don’t sell & you pass away leaving your assets to your children for example, what would your children pay in death taxes??

      Has anyone had a look at what the difference in $’s it work out to?

      Just thinking whats so bad about down sizing if it means you use the money to travel or whatever pleases you in retirement & enjoy your twilight years. You can’t take it with you so why not enjoy if you are in a position to do so.

    • 0
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      ????
      There is no tax on the sale of the family home KSS. There is no saving to be made as you don’t have to put the money into super. Just invest it across a range of products. The only negative may be that if your investment give huge returns you may be paying a few dollars more in tac than the 15% super tax rate. At least your money will not be nationalised by a future government.
      I find this discussion so illogical.

    • 0
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      It is not greed to have worked hard, saved and have a desire to protect the results of thrift. The pension should be a universal payment in retirement as it is in New Zealand and similar other countries, and not something that is fought over. In this forum it usually sounds as if some who chose to spend their disposable income along the way on cars, holidays, clothes, eating out etc. and have finished up with few to no assets want to punish those who managed their affairs differently.

      It so often sounds like the green eyed monster raising its jealous head when others point out here how people should think about their finances, particularly when it involves advice such as, “None except for greed yet again raising its head.” Accusations of greed are utterly uncalled-for, and in the case of high achievers, it is insulting. I prefer the idea that a country rewards effort and success without the tendency to batter people around the head over a few dollars at the end of their lives, just to prove that winners can also be losers.

    • 0
      0

      The usual generalisation and assumptions, Swinging – some people have literally been through hell with various things in this life, and worked damned hard to end up with nothing.

      I know where the green-eyed monster is in all this – with those who already had a good run and now expect to be paid again, while those who had it tough can eat cake.

      ‘politics of envy’ is on the side of those who can’t bear the thought that someone might be getting something they can’t qualify for, since they already have enough.

    • 0
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      My response to your post is mixed, Trebor. Yes, I agree that some have had a good run and expect to be paid again, and that’s wrong. But on the other hand, some had a very tough time but managed to save a little and are now deprived of the benefit of that saving while others who had a great run but spent freely get handouts. I think it’s reasonable for those with modest savings and unable to achieve high returns should object to having an income that is substantially less than the pension and having to drain their hard-won savings while others can earn over $70,000 a year and still get a pension, and spendthrifts who lived the high life put their hand out – often despite having $300,000 in shares earning good returns to top up their pension to a healthy income.

      Consider also that some of those who really struggled to achieve savings have particular needs that increase their cost of living. Just one example I am aware of: a battler who suffered major abuse in childhood and struggled all his life was finally able to achieve a victim compensation payout at age 68. The payout was deliberately calculated to cover the costs for substantial health, dental and optical care and personal care and home help needed because of his early suffering. But he now receives a minimal part pension and is draining his compensation for day-to-day living expenses instead of using it as it was intended.

      The system is a mess. It needs a total overhaul. I agree that envy and greed is offensive, but no more so than ignoring gross unfairness.

  2. 0
    0

    Not many of us luve in houses worth over a million. This another advantage the well off policy. Just moved and rebuilt. No hundreds of thousands left over to invest. It’s an expensive business and the difference in costs between a family home and a smaller place are on the whole negligible.

    • 0
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      Most of the smaller places around this district are being built for retirement homes for the aged. The houses are tiny with an attached garage but very little space between the homes. The prices are also closer to one million dollars than half a million dollars. The main advantage being they are new and should not need any work done on them for several years.

    • 0
      0

      Yes – sell a suburban house and relocate to an ocean front unit and your money is gone.

    • 0
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      A lot of the new builds leak. In fact something like 80% of high rise has water problems so buying new will not necessarily save you needing work done on them. It’s the shoddy materials from China and the Chinese plumbers apparently.

    • 0
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      Children: you have to be careful when you go out into the woods.
      This issue is a total beat-up and con. My suggestion for what it is worth is to ignore the call from this bad government and think about your individuals needs, then keep on keeping on.

  3. 0
    0

    I can’t see this freeing up houses for young families, who cannot afford these houses, more like helping the foreign investors yet again, maybe the pollies want to buy your house to add to their portfolio’s?

    • 0
      0

      Don’t forget robbing your children of an inheritance because you get to live off the proceeds not the pension. These people know what they are doing. Bastards.

  4. 0
    0

    The blatant difference in treatment between super holders and non-super holders stuck out like an elephant’s cods to me from the first moment.

    Also not impressed much by moves to allow people into first home via salary sacrifice etc – all such moves are very rapidly taken onboard by the market and the agents, and generally lead to a rise in prices and costs anyway. I’m sorry to say but the entire issue of home ownership has been whacked out of kilter by other factors, and the only eventual outcome that will restore sanity is the failure of the market overall. That will lead to much pain for many who’ve over-invested on minute genuine equity, and for the banks who’ve unwisely loaned out to the feeding frenzy – but perhaps that simply means it is their time to share the pain.

    I’ve long related this current mad frenzy to the conditions that caused the Wall street Collapse in the 1920’s – people borrowing on equity to buy more stocks and bonds, and then doing it again… put simply – you do not develop GENUINE equity in the short term, and the promotion of such a foolish concept is bordering on the criminal. It is also startlingly reminiscent of the antics of Alan Bond over in WA and the way he exploited ‘equity’ to continually upgrade his cash flow, while reaping massive fees and payments to self and family companies.

    That such schemes are permitted to continue to this day shows, to me, the essential criminal nature of our government while tied to donors and cronies.

    • 0
      0

      Yes TREBOR. An article today in the SMH detailed a 22 year old with 4 investment properties. When it gets to that the ponzi nature is soon to be felt I’m afraid. Last night my very high income earner son told me he has stopped consuming and is paying down debt as he’s over being in debt. Can’t be long before retail falls over and housing after it.

    • 0
      0

      Of course – your average politician housing investor will never not have income adequate to satisfy their ‘need’ to sustain their portfolio – get the boot from the electors and the party will find them a job to keep them going for life while they draw or wait for their ‘pension’.

      So eventually all the property will be owned by the rich and their mates in politics….. all other pay rent…. a great return to the good old days of the feudal landlord….

    • 0
      0

      I agree Trebor, I think secretly that is what they are planning, turn us all back to slaves. They are also working on taking Indigenous land rights away as well.

      http://wanganjagalingou.com.au/turnbull-offers-to-sacrifice-aboriginal-rights-to-adani-in-an-act-of-national-betrayal/

    • 0
      0

      music – that sounds like ‘steady erosion’ of Indigenous rights that ‘stand in the way’ of ‘infrastructure for the nation’ and ‘jobs and growth’ and ‘economic necessity’….

      How long before we see a repeat of the Arukuun Incident, where developing an oceanside resort for visiting Asians was more important than Indigenous rights?

      When it comes to the big boys – roll over, Beethovenagunya… and get out of the way of civilisation and development, boy….

    • 0
      0

      Yep, pretty much what they are doing in many countries. Does not matter if your ancestors have been living there for 100’s or 1000’s of years, the land is taken by developers (ie Government developers too). Adani has already got a reputation of environmental damage, and has already done so in the Casey wetlands that it was told to protect.And then will they pay any taxes?

    • 0
      0

      No – taxes are very low on their list of priorities, and the most blatantly obvious danger for this nation in ‘encouraging ‘investment’ from offshore corporations is that they will spirit away the profits while writing it all off against costs and repayments listed offshore, often in a ‘sister’ company or whatever.

      There must always, as well, be massive concern over any legislation that permits an ‘out’ through using ‘best public interest’ to over-ride other claims…. for Indigenous (and other) rights, that can mean that a ‘court’ in the hands of a government of the day, can rules that the ‘public interest’ out-weighs the rights involved, which are only ‘paper’ rights, after all and not civil or human rights.

      The price of liberty is eternal vigilance, and nowhere more clearly than in the perpetual civil war between government and people for ownership of the top of the hill…….. that last is something a lot of people could start thinking about very seriously. It’s a theme I’ve been working on for a while now – in between bouts of laziness and other responsibilities….

    • 0
      0

      Good post Trebor.

  5. 0
    0

    Before we downsize there are other things to consider – for instance It will cost about 80,000 all up to sell, buy and pay all those taxes and then perhaps move into a retirement village. I am renovating my home and ‘geriatricising’ it in case I need mobility frames etc for significantly less. The money I save by not downsizing can be used to pay a person to help with garden and if need be clean the house and me! I keep my dog and garden! No body is mentioning that the Home Care Package has been put off for 2 years. This would have made it possible for the elderly and increasingly frail to stay in their own home and bed. grrhhhhh!

    • 0
      0

      Good perspective!

    • 0
      0

      Exactly – and it wasn’t so long ago that there was a government initiative for people to remain in their home because it saved on very expensive nursing homes.

      At least there is no mention of “have to” …..yet.

    • 0
      0

      Yes and why have the disabled by age been kept out of the NDIS. Blatant age discrimination. You can access NDIS up until 65 only.

    • 0
      0

      Yes, Rae – it’s a nonsense to be excluded at a time when long term disabilities are most likely to get worse.

      I’ve long had the same argument about TPI for veterans – why does a
      Veteran who turns 65 suddenly become less injured that he/she was forty years ago? If you can push your application through one day before you get TPI for life – one day later and you get Service Pension only.

    • 0
      0

      Stay in your own home as long as possible unless there are extenuating circumstances. This Budget item is a con and those who take it up will be sorry down the track.

    • 0
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      Don’t sell your house and go and live in a retirement village. Someone who should know gave me this advice the other day. People think that they will get more care in a retirement home, but this is not true, at least in WA.

  6. 0
    0

    I say f u. People want to stay in their homes if they can, homes that they worked all their lives for and paid a mortgage (some through the terrible 17% interest days), insured, raised children and maintained with after tax dollars.

    • 0
      0

      Yes – it is a stress factor to ‘lose’ a home or move homes. The time to relax has become more like – “he/she who would prefer peace and quiet, must prepare for war”…. disgraceful after what, for many, has been an extremely stressful life time dealing with massive and often unthought out changes in society and such, and the often carefully thought out chicaneries of politicians and other arms of government bent on destroying the power of the individual.

      Those who’ve managed to come safe home with their home and family intact should be left alone to enjoy retirement and not harangued by desperate politics seeking a way into their wallets at every turn.

    • 0
      0

      Whilst I may not agree with your language Kaz I totally agree with your post. This call to downsize is a con and I hope older Australians are not duped by it.

  7. 0
    0

    I’d be very careful moving large amounts of funds into non concessional super. In some case up to 50% non concessional amount has been deemed at only 10% . Sovereign risk is far too high. It would be safer to keep it out of super as a couple can earn a lot without tax and even more with only a small tax.

    Just be very careful.

    • 0
      0

      I agree. Just add to that to NOT put any more than $250,000 TOTAL into the big banks as the government can take this money if there is a global meltdown. That means $250,000 between all of the banks as the 4 pillars are considered one bank if the unthinkabke happens. Spreading amounts between safe smaller banks looks safe though.
      It’s shark infested waters out there Rae. Don’t trust your government. Only simpletons do that and they will suffer the most if bad things happen…and yes we appear to be building up to something bad but who knows.

  8. 0
    0

    This is an excellent article. Houses in Sydney are $1.2m. However they still need somewhere to live and it won’t be in the CBD for $600K less sales tax, transition costs, and removal costs.

    You can’t buy a home or apartment in my country town under at least $650K and having done a house hunt with my son recently in the cheaper areas the entry level apartments are not suitable for the elderly and houses were absolutely horrid – filthy pull down homes.

    Sure you can move even further out from the major cities but then the cost of getting to the city of medical treatment is very expensive and often requires an overnight stay in a motel. So exhausting and costly.

  9. 0
    0

    We are a pair of baby boomers who worked hard for our house and are now just “caretaking” for the kids. On a full pension. Would a better plan be that we could sell off downsize but give the difference to our kids thereby making it possible for them to buy????

    • 0
      0

      No. You have a long life ahead of you.

    • 0
      0

      Check the gifting rules with Centrelink first. I think you’ll find that the money you give to the kids would be classed as a deprived asset and you may lose some of your pension. You would be worse off

    • 0
      0

      Dangerous. Gifting to the kids will incur a 5 year reduction and/or loss of pension.
      My call would be to sit pat and leave your children your home. Unless this bad bad government reintroduces Death Duties your home should be safe.

  10. 0
    0

    I have reposted this as this is more revealnt.
    There is a Nominal Value for your home, couple home owners of $370k.
    This is madeup of the additonal assets allowed $200k and Rental assisttance (useing deaming rates). Non Home Owners
    There are a lot of couples already at this Value of Home and way below and above.
    With this extra money and costs associated with downsizing what real benefit other than change of location maybe, and smaller manageable home maybe will you receive.
    Frustration and confussion moving forward, really add to super a non Government Guarantee Fund.
    It should be around $370k to match the Nominal Value as additonal non asset testing amount. (The differrence between Couple Home owners and Non Home Owners)
    Used freely, who’s refunding the costs with down sizing and moving.
    Think Very Carefully about all the consequences as there is no Do Overs except by the Government where they will DO YOU OVER as many times they can.

    • 0
      0

      A DO OVER is precisely what this is. Good luck to anybody who thinks they are being given anything by this government. Four years of them should have told people that.

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