Downsizing Your Home in Australia: Financial Benefits, Super Contributions, and Tax

The Financial Benefits of Downsizing in Retirement

The primary financial benefit of downsizing is releasing equity. If you sell a $1.2 million family home and purchase a $700,000 unit or townhouse, you free up $500,000 (less selling and buying costs of approximately $40,000–$60,000). This capital can be used to fund retirement, pay off debts, assist children, or contribute to superannuation.

Reduced running costs are also significant. A large family home may cost $15,000–$25,000 per year in rates, insurance, maintenance, gardening, and utilities. A smaller property or unit (particularly with body corporate managing common areas) may cost $8,000–$15,000 per year — saving $5,000–$10,000 annually.

Lifestyle improvements should not be underestimated: moving to a single-level dwelling, a location closer to medical facilities, or a community with shared amenities can significantly improve quality of life in later years.

However, downsizing is not always the right financial decision. Stamp duty on the new purchase (which can be $20,000–$40,000+ depending on state and price), selling costs (agent fees, styling, marketing — typically 2–3% of sale price), and moving costs must all be factored in. In some cases, the total transaction costs consume a significant portion of the equity released.

The Downsizer Super Contribution: Up to $300,000 per Person

The downsizer contribution allows eligible Australians to contribute up to $300,000 each ($600,000 per couple) from the proceeds of selling their home into their superannuation fund. This contribution does not count towards the standard contribution caps and can be made even if your total super balance exceeds $1.9 million.

Eligibility requirements: you must be aged 55 or over at the time of the contribution; the property must have been your principal place of residence for at least 10 years; the property must be in Australia; and the contribution must be made within 90 days of settlement (or an extension can be requested from the ATO).

The contribution is not tax-deductible — it is an after-tax (non-concessional) contribution. However, once inside super, the investment earnings are taxed at just 15% (accumulation phase) or 0% (pension phase). For a $300,000 contribution earning 6% per year, this translates to approximately $3,600 per year in tax saved compared to holding the same funds in a personal investment account taxed at the 32.5% marginal rate.

You can only make a downsizer contribution once in your lifetime — it cannot be repeated if you downsize again. The contribution does not count towards the $1.9 million transfer balance cap if the funds remain in accumulation phase.

• ✓Up to $300,000 per person ($600,000 per couple)
• ✓Must be aged 55 or over at time of contribution
• ✓Property must have been principal residence for 10+ years
• ✓Contribution must be made within 90 days of settlement
• ✓Does not count towards standard contribution caps
• ✓Available even if total super balance exceeds $1.9M
• ✓Lifetime one-time use — cannot be repeated

How Downsizing Affects the Age Pension

This is the critical consideration that many downsizers overlook. The family home is exempt from the age pension assets test — regardless of its value, it does not count as an assessable asset. However, if you sell the home and hold cash, invest the proceeds, or contribute them to super, these become assessable assets.

Example: A couple on the full age pension sells their $1.5 million home and buys a $700,000 unit. The released $800,000 (less transaction costs) either sits in the bank, is invested, or goes into super. Under the assets test, this new assessable amount could reduce their pension by $78 per fortnight for every $10,000 over the threshold — potentially eliminating their pension entirely.

The assets test free areas for homeowner couples (as of 2026) are approximately $419,000. A couple with $800,000 in newly assessable assets would be approximately $381,000 over the threshold — resulting in a pension reduction of approximately $1,486 per fortnight, which would likely eliminate the pension entirely.

Temporary exemption: For up to 24 months after selling your home, the sale proceeds (up to a certain limit) are exempt from the assets test while you are looking for a new home. This provides a window — but once you purchase, any remaining proceeds become assessable.

This does not mean downsizing is wrong — but the pension impact must be modelled carefully. A financial adviser can calculate whether the investment returns on the released capital outweigh the loss of pension entitlement.