Seniors Downsizing Incentive Scheme for 2022
If you’re looking for the latest pension news Australia 2022 has to offer, the Federal Government is providing incentives for elderly to downsize homes. Initially proposed by the Coalition, the seniors downsizing grant would be implemented if the former Prime Minister, Scott Morrison, was re-elected.
Morrison said, “We are now giving Australians more choice to decide how they want to live the next stage of their life by removing financial barriers for people wanting to downsize their home”, adding, “By removing barriers for Australians downsizing to residences that better suit their needs and lifestyle, we are helping to free up larger homes for younger families” – referring to the fact that a pensioner can move into a smaller home, boosting the housing stock.
Recently, updates to the downsizing incentive scheme have been introduced in Parliament and launched by the Federal Government. According to the Social Services Minister, Amanda Rishworth, they will “benefit thousands of pensioners and other recipients each year”.
Benefits for Pensioners in Australia
As a result of the new Government downsizing scheme, there are now incentives for the elderly to downsize their homes. They’re further offered an extended asset test exemption and a better tax break on their home sale proceeds.
The assets test exemption is extended from 12 to 24 months for principal home sales (along with 12 months in certain cases), while the tax break has been extended to allow up to $300,000 from a family home sale to be put into superannuation without a penalty.
Downsizer Superannuation Contribution Program
The age pension provides financial aid to eligible older Australians and allows them to maximise their income. Its rates are adjusted to accommodate changes in living costs and wages.
When it comes to eligibility, citizens must fulfil residence requirements and means test qualifications. That’s in addition to meeting the pension age, which is currently 66 years and 6 months.
Another income source for pensioners is superannuation. The employer puts this money in a super account during an employee’s working years to live on during retirement, and its value depends on super guarantee rates. Depending on the situation, the eligibility for most individuals to be able to access superannuation is around 55-60 years.
With the new legislation, individuals over 65 can sell their family homes of over ten years and allocate $300,000 of the sale proceeds to their superannuation. Couples can also contribute $600,000 to their superannuation for the same home, doubling the benefit. The downsizer contribution won’t affect contribution caps, attracting tempting tax breaks.
As for the downsizer age requirement, the new legislation has decreased it from 65 to 60 years since the first of July. Additionally, the Coalition intends to reduce it to 55 if re-elected.
Asset Test Exemption for Pensioners
Referenced earlier, the means test is composed of an income test and an assets test. The social security system refers to deeming rules to evaluate a senior citizen’s income from their financial investment.
- Firstly, the income test affects the pension value – a high income (over the pension limit) means a lower pension. That test considers all sources of income for you and your partner.
- Secondly, the assets test determines if you’re eligible for the age pension, carer payment, or disability support pension. To add, it plays into the pension amount.
- Finally, your assets and relationship status come into play.
Originally, family homes were exempt from asset tests. However, the proceeds from selling them weren’t, which deterred people from selling their houses and moving into smaller and cheaper homes.
The current policy excludes sales proceeds from your asset test for 12 months. This rule buys you time to purchase a new home or work on your asset portfolio after selling. Even better, starting from Jan 1, 2023, the asset test exemption will be extended from 12 to 24 months.
The policy’s goal is to reduce pensioners’ financial burden when they downsize their homes, encouraging them to take the step. This way, they have more time to buy, repair, build, or renovate new housing before their pensions are reduced.
Stamp Duty Relief for Downsizers
The stamp duty, also known as land transfer duty, is a tax fee that state and territory governments collect when you buy a new property (calculated as a percentage of its purchase price). It’s also applicable to leases, motor vehicle registration & transfers, transfers of property, hire purchase agreements, and insurance policies.
It’s worth noting that stamp duty rules vary according to your state or territory. Generally, they apply to downsizing homes and buying land for that purpose. However, some lucky Australians get to enjoy a stamp duty exemption incentive!
An older Australian citizen living in Victoria can sell their home and buy a smaller property or land to build one and get an exemption or reduction on the stamp duty. To qualify, you must be at least 60 or a member of the NT Concession Scheme. Note that you can benefit from this exemption only once.
This downsizing incentive scheme removes another obstacle for pensioners buying new homes, allowing them to save up to $12,750! After all, the fee can get expensive and is usually paid upfront. For the same reason, first-home buyers and other special categories of buyers can benefit from the tax exemption.
Seek Further Advice
The new legislation allows pensioners who downsize their homes two main benefits. For one, they can contribute up to $300,000 of the home sale proceeds to their superannuation. Also, the proceeds will be exempted from their asset test for an additional 12 months.
However, some people are doubtful of this legislation’s success. They’re concerned most retirees are emotionally attached to their family homes, having lived in them for many years. This factor can stop them from selling them despite the financial incentive offered.
However, if the incentive is still successful, this legislation will free up numerous homes for new families. After all, Australia has two million pensioners who have their own homes, so encouraging them to sell will reduce housing shortages.
Whether for retirement savings or health and mobility reasons, downsizing is a difficult decision. Accordingly, homeowners should consult with financial and real estate experts before making such life-altering decisions.