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The Tax Penalising Australians for Downsizing | the Advisory

The advisory focuses on how Australia’s tax framework discourages older homeowners from downsizing, a factor that deepens the nation’s housing crunch. While the government targets building 1.2 million new homes, analysts note that 13 million existing dwellings contain spare bedrooms, and 75‑80 percent of Australians over 65 own multi‑bedroom houses they no longer need. Three tax‑related obstacles keep seniors in oversized homes: a $300,000 cap on downsize‑to‑super contributions, stamp‑duty payable on the new, smaller property, and the risk of losing or reducing the age‑pension when assets shift. These costs outweigh the modest tax benefit, making downsizing financially unattractive. Roger Parrot proposes three reforms: increase the downsize‑to‑super limit—potentially up to $1 million and tied to existing super balances; exempt downsizers from stamp duty; and grant a temporary five‑year pension asset exclusion so retirees keep benefits after moving. He illustrates the absurdity of a $10 million inheritance buyer retaining full pension eligibility, underscoring the need for equitable policy. If adopted, these changes could unlock a substantial supply of vacant bedrooms, creating a cascade effect where younger families move into newly available homes, easing price pressure and supporting the broader housing agenda.