CHOOSING TO DOWNSIZE FROM THE FAMILY HOUSE TO A RIGHTSIZED HOME THAT BETTER SUITS YOUR LIFESTYLE CAN PROVIDE A MAJOR FINANCIAL BOOST TO YOUR RETIREMENT FUNDS.
Last year, the Australian Government announced incentives to encourage older Australians to downsize their homes to free up housing stock for younger families.
And it’s not just those who are eligible for the aged pension who will benefit.
The Downsizer Superannuation Contribution Program
The Downsizer Superannuation Contribution Program allows Australians over the age of 55 who plan to downsize, to put up to $600,000 per couple ($300,000 for individuals) into their superannuation account.
The program isn’t new, but a rule has recently changed which lowers the age at which one can access the scheme. Prior to 1 January 2023, only people over the age of 65 could use the program.
Another thing to note is that the Downsizer Superannuation Contribution Program has no upper age limit. This is important because once you reach the age of 75 you are ineligible to make further superannuation contributions – regardless of whether you’re working or not.
Does being on the pension affect your downsizing plans?
If you are planning to be among the 92 percent of Australians over the age of 65 who receive the aged pension, there are additional factors to be aware of.
From 1 July 2023, if you were born on or after 1 January 1957, you have to be aged 67 years to be eligible as well as meet certain other criteria regarding assets and income.
The government assesses your eligibility against all assets and income for yourself and your partner as a couple, including:
• Financial investments
• Home contents, personal effects and vehicles
• Real estate, annuities, income streams and superannuation pensions
• Businesses and private trusts.
The home you live in is not included in the asset test which raises the question: Will selling your home affect your pension?
As with anything to do with the government and government services, the answer to the question is ‘perhaps’, and dependent on individuals’ circumstances.
Extended asset exemption: The Federal Government’s rule changes that came into force on 1 January 2023 mean you have up to 24 months to purchase a new home before its proceeds are considered assets that will affect your pension rate. This can be extended to 36 months in exceptional circumstances.
Lower deeming rate: The proceeds from the sale of the home are deemed at a lower rate for calculating your pension.
DID YOU KNOW THERE ARE MORE WAYS TO KEEP MONEY IN YOUR POCKET?
Saving on stamp duty
Stamp duty is the state tax you pay when purchasing a home. While some states offer incentives for those who are downsizing, these are not consistent across the country.
Queensland and South Australia, for instance, offer no stamp duty incentive.
However, there is a way to purchase a brand-new home and not pay that tax.
Land lease communities or over-50s lifestyle resorts, like GemLife, give you the opportunity to purchase a new home and simply lease the land that it is on, which means you don’t pay stamp duty.
Eligible for rent assistance
The lease takes the form of a weekly site fee which covers the cost of maintaining and operating the resort and its facilities – much like a body corporate fee. However, because the site fee is classified as ‘rent’, homeowners who are eligible for the seniors’ pension may also be eligible for rental assistance which further reduces out-of-pocket expenses.
Reduced lifestyle expenses
Living in an active, over-50s lifestyle resort, in a home which is rightsized for your lifestyle, means saving time and money on home maintenance like mowing the lawn and cleaning the pool.
Because GemLife resorts have luxurious Country Clubs with first rate sports and leisure amenities, including a fully equipped gym, private cinema commercial kitchen and grand ballroom, homeowners often discover other unexpected lifestyle savings too.
Reduced utility bills
In addition to homes being fitted with the latest energy-efficient kitchen appliances, GemLife homeowners benefit from an Australian-first Virtual Power Plant. This innovative renewable energy solution, currently being rolled out to all resorts, substantially reduces power bills, with homeowners receiving $8 a month in bills and some homeowners receiving no power bills at all.
WHAT IS DEEMING?
Rules the Federal Government use to work out the income created from your financial assets is called ‘deeming’.
This covers everything from money in the bank, shares you own, and certain other types of income. There are two deeming rate tiers. The first is 0.25 percent and the second is 2.25 percent. They apply in different ways dependent on whether you are single or a couple, whether one of you is receiving a pension, or if neither of you are on the pension.
Please note: The information in this article is general in nature. Everyone’s individual financial circumstances and needs are different. You should seek independent financial and legal advice.