Are taxes disincentivising downsizing?

Reserve Bank of Australia Governor, Michelle Bullock has recharged the debate about supporting seniors to downsize from their family home in order to free up cheaper housing for first home buyers. 

It’s a discussion that quickly turns to taxes and incentives; taxes imposed by state governments in the form of stamp duty, and federal Age Pension barriers. 

National Seniors has innovative policies aimed at reforming both, and incentivise older people to move if they want to and need to. You can read more about these policies on our Better Housing campaign page. 

But first what did Ms Bullock say that has relit the debate? 

Ms Bullock has criticised stamp duty as a barrier to retirees downsizing. That, in turn she says, is locking up a limited supply of much in-demand housing and adding to the housing crisis. 

Stamp duty is the tax imposed by state governments charged on the value of a property when sold and accounts for about a quarter of the taxation revenue levied by state governments. In NSW, duty on a $1.5 million home is about $65,000. 

Ms Bullock suggests stamp duty is a big cost impost and encourages people to stay in homes inappropriate for their circumstances. 

An older householder may stay in their family home rather than downsize to a smaller apartment to avoid paying stamp duty. 

“There’s many older people whose families have left home, who are still in their large homes, and they’re not downsizing,” Ms Bullock said. “Are there policies, taxes, things we do that are discouraging people, perhaps, from downsizing? Are there reasons why people aren’t sharing?” 

NSA’s own research has consistently shown that stamp duty, the cost and hassle of moving and a lack of suitable alternatives are some of the key barriers to downsizing. Our most recent research on housing can be found here. 

Some forward-thinking state and territory governments have already seen the light and introduced concessions or changes to duties/taxes to encourage older people to downsize.  

Victoria and Tasmania have seniors’ stamp duty concessions available. The Australian Capital Territory is going further by not only offering a seniors concession, but also phasing out stamp duty altogether, replacing it with a land tax. 

National Seniors Australia has a raft of achievable reforms to enable and support older homeowners who want and need to downsize. 

We’re calling on governments to introduce a stamp duty concession for eligible seniors in Queensland, New South Wales, South Australia, Western Australia and the Northern Territory.

While stamp duty is a serious disincentive to selling, the Age Pension assets test is also an obstacle to seniors downsizing into more manageable and age-suitable housing. 

Why? Because seniors fear they will lose their pension or have payments cut, because of proceeds from the sale of their house would be counted in the Age Pension assets test. 

Central to our policy is exempting a portion of sale proceeds from the Age Pension asset test for pensioners who are older and receive services via Support at Home.  

Our proposals are pragmatic, sensible and targeted, and address the budget requirements of state, territory and federal governments. More on those proposals a little later. 

We are not alone in promoting pension asset test reform. The private market retirement living sector also wants the test changed, if only for more older people to then have the funds to pay to enter their retirement villages.  

The Retirement Living Council- Property Council (RLC), the national leadership group for the retirement living/villages development sector, want changes to the Age Pension asset cap – raising it from $315,000 to $550,000 and the Commonwealth Rent Assistance (CRA) lifted from $252,000.  

Their proposal is not targeted at those who actively downsize, and as such would be an enormous burden on already stressed Commonwealth budget.