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Budget unveils policy benefits for senior home owners

by Pamela Koh | 15 May 2013

Thirty thousand older Australians stand to benefit from a new trial program that allows seniors who have owned their homes for 25 years to downsize to smaller homes and bank the proceeds without affecting their age pension.

The $112.4 million scheme announced in the 2013 Australian Federal Budget Tuesday night, will begin its three-year trial period from July 2014, letting older Australians who have owned their home for 25 years to sell up and buy smaller homes, without needing to worry about the impact to their profits.

In a move to support Australia’s ageing population, the Budget confirmed changes to remove taxes on deferred lifetime annuities and give them the same tax treatment as current income streams.

Senior homeowners can now buy a smaller home and bank 80 percent of the remaining proceeds of up to $200,000 into a special bank account. The sum, plus interest, will be exempt from the aged pension means test for up to 10 years. 

However, this account only works on the condition that no withdrawals are made, except to be gifted. At present, Australia does not impose estate, inheritance or gift taxes, so money transferred to family members is in the clear. 

Those in the retirement planning industry warmly received the policy change. 

“The new announcement allowing the downsizing of a retiree’s home without reducing Age Pension is a sensible initiative which will assist the current generation of retirees who didn’t have compulsory super for their whole working lifetimes, and for many of whom the family home is their main retirement asset,” Melinda Howes, chief executive of Actuaries Institute said. “The current system and most people’s own planning do not take into account how long the current generation of Australian workers will live.” 

People moving into retirement villages and granny flats are also able to take advantage of this scheme but the trial excludes seniors moving to residential aged care. 

This is only one of the changes announced in the Budget on Tuesday night that could affect seniors. 

In the Budget, the Government has set aside $127 million for older Australians. In addition to the $112.4 million to support those downsizing their homes,  $9.9 million will be used to extend broadband support.

The budget has also factored in $4.6 million for a new ageing policy institute. 

Attempts to level a $19.4 billion deficit this financial year and a projected $18 billion shortfall next year will see out-of-pocket Medicare costs rise via an increase in the levy. 

Despite the Medicare levy rising from 1.5 per cent to two per cent, the Government will be committing more money to fund hospitals and invest in healthcare. Health funding overall is set to rise to a record $64.6 billion. 

The biggest budget boon for healthcare though, comes in the form of a $14.3 billion investment boost for Disability Care Australia. This boost in funding will eventually support some 460,000 people with severe and permanent disabilities by 2018/2019. The new Medicare levy rise will contribute in paying for this. 

In other health-related initiatives, $226 million has been set aside by the Government to fight cancer. Within that amount, $55.7 million will be used for breast cancer screening, $18.5 million for prostate cancer research and $23.8 million for bone marrow transplants. 

The government says the current budget will put Australia back on track in erasing its deficit, forecasting an $800 million surplus by 2015/2016.