Downsizing in Australia: the financial moves nobody warns you about

A couple sells the family home for $1.6M and buys a townhouse for $850k. Most people would tell you they've freed up $750,000. The real number, after agent fees, stamp duty on the new place, and a chunk locked into super, is closer to $70,000 of liquid cash. Downsizing is one of the largest financial events most Australians will ever go through, and the brochures from retirement-living developers tend to skip the parts that cost real money.

The downsizer super contribution: the lever most people miss

Australians aged 55 and over can contribute up to $300,000 each ($600,000 per couple) into superannuation from the proceeds of selling their main residence. The eligibility age was originally 65, dropped to 60 in 2022, and was lowered again to 55 in 2023. These contributions sit outside the concessional and non-concessional caps, so they don't cannibalise the normal $30,000 / $120,000 yearly room you might already be using.

The conditions matter. You must have owned the home for at least ten years, the contribution must be made within 90 days of settlement, and the property must qualify for at least a partial main-residence exemption from CGT. You also can only do it once per home sale. If you're already at or past Age Pension age, this is the most powerful concession on the table; very few other contribution paths let a 67-year-old put $300,000 of after-tax cash into a tax-advantaged earnings environment in one transaction.

CGT on the family home, mostly but not always

The main residence exemption usually wipes out capital gains tax on the sale of a home. That's the default assumption people carry, and for a couple who bought a place in the 1990s, raised kids in it, and lived there continuously, the assumption holds. The exemption breaks down in three common scenarios.

• The property was rented out for periods (the six-year rule gives some breathing room, but stays away beyond that and the gain is apportioned across days).
• Part of the home was used to run a business, with that floor-area share losing its exemption.
• The home sits on more than two hectares of land, in which case only two hectares attract the exemption and the balance is taxable.

For most owner-occupiers, none of these apply and the sale is fully exempt. For the few cases where they do, the CGT worked example article shows how the apportionment maths plays out, and the CGT calculator will get you a first-pass number on the apportioned gain.

Selling is exempt, buying is not

Stamp duty on the new place is the line item that catches the most people off guard. There's no concession for the simple fact that you're downsizing rather than upsizing. A downsize from a $1.6M home to an $850k apartment will cost somewhere between $30,000 and $55,000 in transfer duty depending on the state, and that's before legal fees, building reports, or strata reports.

Some states offer targeted relief. Victoria has a pensioner concession that scales out to roughly $750,000 in dutiable value, with full exemption under $600,000 and partial relief up to the cap. NSW has no equivalent broad downsizer scheme but offers concessions for first-home buyers and certain off-the-plan purchases that retirees occasionally qualify for through a child or grandchild. Queensland, SA, WA and Tasmania each have their own quirks. The stamp duty calculator on Burbfinder will give you a state-by-state number for the new purchase price, which is a more useful starting point than a national rule of thumb.

The age pension trap

The family home is exempt from the Centrelink assets test. Cash in the bank, term deposits, shares, and super in pension phase for someone past Age Pension age, are not. A couple who own a $1.6M home outright and have $200k of other assets are typically well within the assets-test thresholds and on or close to the full Age Pension. Sell the house, buy a $850k apartment, and put the leftover into super and the bank, and the asset position looks completely different.

Under the assets test, payments taper above the lower threshold at $3 per fortnight per $1,000 of assessable assets above the threshold. A homeowner couple loses pension entitlement completely above roughly $1.05M of assessable assets (the thresholds are indexed; check Services Australia for current figures). Adding $670k of newly-assessable assets to a couple who were previously near the full pension can reduce fortnightly payments by hundreds of dollars and, in some cases, cut entitlement to zero. The income test runs in parallel and can also bite once the new financial assets start earning deemed income.

A worked example: $1.6M out, $850k in

Margaret and Tony are both 67 and have owned their Sydney home for 22 years. They sell for $1,600,000. Selling costs run roughly $40,000: agent commission at 2% ($32,000), marketing $5,000, and conveyancing $3,000. Net sale proceeds are $1,560,000.

They buy a townhouse in the same suburb for $850,000. NSW transfer duty on $850k is around $33,500, conveyancing and building/strata reports add $5,000, and removalists plus minor fit-out come to another $8,000. Total cost to acquire and move in is roughly $896,500. Cash freed from the transaction is $1,560,000 minus $896,500, or about $663,500.

They each make a $300,000 downsizer contribution, parking $600,000 inside super where earnings are taxed at 15% in accumulation phase or zero in retirement phase up to the transfer balance cap. The remaining $63,500 stays in their offset and savings accounts as accessible cash. On the Centrelink side, $663,500 of new assessable assets pushes them above the homeowner-couple full-pension threshold. Under the 2026 indexed assets test their fortnightly Age Pension payment drops by roughly $400 to $600 per fortnight (the exact number depends on what other assets they hold; run the figures through the Services Australia Payment and Service Finder before making the call).

The headline cash freed is $663,500. The liquid, spendable cash is closer to $63,500 once the super contributions are made. The annual income hit from reduced pension might be $10,000 to $16,000. Whether the trade is worth it depends on what the super earnings replace, the lifestyle the new home enables, and how much the couple value being mortgage-free in a place that suits their next twenty years rather than their last forty.

The line items the worked example skips

Real downsizes have a long tail of smaller costs. Agent fees sit between 1.8% and 2.5% in capital cities and higher in regional markets. Marketing campaigns range from $5,000 for a modest online package to $15,000 or more for a full glossy campaign. Removalists for a four-bedroom house typically run $2,000 to $5,000, and that figure climbs sharply if you're moving interstate or putting items into storage while renovations finish on the new place.

The non-financial cost is real too. Forty years of accumulated possessions don't fit into a two-bedroom townhouse, and the time required to sort, sell, donate, and dispose runs into weeks rather than days. Children rarely want the heavy oak dining suite. Plan for a skip bin and several trips to the op-shop, and budget the emotional toll alongside the financial one.

Downsizing can be a strong financial move. It can also leave people materially worse off if the second home costs more than anticipated, the pension cut is bigger than expected, or the super contribution opportunity is missed because the 90-day window slipped past. Run the numbers across all four levers, sale costs, purchase costs, super, and pension, before signing a sale authority. A two-hour conversation with a financial adviser who specialises in retirement income is one of the cheapest insurance policies available against an expensive regret.