Downsizer Contribution and the Age Pension: The Trap That Cuts Your Payment
A downsizer contribution lets you put up to $300,000 from a home sale into super — but it can quietly cut your Age Pension. The reason is simple: your family home is exempt from the assets test, while money in super is fully assessable. Move $300,000 from one to the other and Centrelink can reduce your pension by up to $3 a fortnight for every extra $1,000, on top of deemed income on the same money.
It is one of the most common, and most expensive, mistakes I see at the kitchen table. Retirees hear that the downsizer contribution is “a tax-free way to boost super after 55” — which is true — and assume that because it isn’t taxed, it must be a free win. For a pensioner, it often isn’t. This guide walks through exactly how the trap works, shows a full worked example with verified March 2026 figures, and sets out when downsizing still makes sense.
What a downsizer contribution actually is
The downsizer contribution is a Commonwealth scheme that lets eligible older Australians put proceeds from selling their home into superannuation. The headline rules, confirmed by the ATO, are:
- You must be 55 or older when you make the contribution.
- You can contribute up to $300,000 per person ($600,000 for a couple) from the sale.
- You (or your spouse) must have owned the home for at least 10 years, and it must have qualified for the main-residence capital-gains-tax exemption in full or part.
- The contribution must be made within 90 days of receiving the sale proceeds (usually settlement).
- It does not count toward your concessional or non-concessional contribution caps, and there is no upper age limit and no work test.
Source: ATO — Downsizer super contributions.
For people not on a means-tested payment, this is genuinely attractive: money inside super grows in a low-tax environment and pays no tax once you start a retirement-phase pension. The problem is entirely about how that same money is treated for the Age Pension.
Why your exempt family home becomes a deemed, assessable asset
The Age Pension is means-tested two ways — an assets test and an income test — and Centrelink pays you whichever produces the lower pension. The single most important fact for downsizers is this:
Your principal home is exempt from the assets test. It does not matter whether it’s worth $500,000 or $5 million — the home you live in is not counted. The moment you sell it and move the money into super, that money becomes an assessable financial asset: it counts in full under the assets test and it is “deemed” to earn income under the income test. (Confirmed by Services Australia — Assets test for Age Pension.)
So a downsizer contribution doesn’t create new wealth — it just reclassifies existing wealth from an invisible asset (your home) into a visible one (super). Centrelink can now “see” it. If your assets were already near the limit, the visible portion starts cutting your pension immediately.
The two tests in numbers (20 March 2026 – 19 September 2026)
Here are the verified thresholds. The pension reduces once you pass the lower “full pension” limit and cuts out entirely at the upper limit.
| Situation | Full-pension asset limit | Part-pension cut-off |
|---|---|---|
| Single, homeowner | $321,500 | $722,000 |
| Single, non-homeowner | $579,500 | $980,000 |
| Couple, homeowner (combined) | $481,500 | $1,085,000 |
| Couple, non-homeowner (combined) | $739,500 | $1,343,000 |
Assets-test taper: the pension reduces by $3 per fortnight for every $1,000 of assessable assets above the full-pension limit. Figures: Services Australia, effective 20 March 2026.
Notice the non-homeowner limits are roughly $258,000 higher. That extra allowance exists precisely because non-homeowners don’t have an exempt home — and it matters a lot in the “sell and rent” scenario below.
Worked example: selling the home and contributing $300,000
Meet Barbara, 68, single, full Age Pensioner in Adelaide. She owns her home (worth $850,000) and has $290,000 in other assessable assets — a bit of super, a term deposit and her car and contents. Because her home is exempt, her assessable assets ($290,000) sit below the single-homeowner full-pension limit of $321,500. She receives the full single pension of $1,200.90 a fortnight (about $31,223 a year, including supplements — Services Australia).
Barbara sells her house, buys a smaller unit for $550,000, and is left with $300,000 spare. She hears about the downsizer rule and contributes the full $300,000 into super. She is still a homeowner (she bought the unit), so her thresholds don’t change. But her assessable assets do.
Step 1 — New assessable assets. $290,000 (existing) + $300,000 (new super) = $590,000.
Step 2 — Amount over the limit. $590,000 − $321,500 (single homeowner full-pension limit) = $268,500 over.
Step 3 — Apply the taper. $268,500 ÷ $1,000 = 268.5 increments × $3 = −$805.50 a fortnight.
Step 4 — New pension (assets test). $1,200.90 − $805.50 = $395.40 a fortnight, about $10,280 a year.
The damage: the same $300,000 — which was completely invisible while it sat in her home — has cut Barbara’s pension by roughly $805 a fortnight, around $20,943 a year. Over a 20-year retirement that is hundreds of thousands of dollars in forgone pension. Her $300,000 in super would need to reliably earn more than 7% a year, every year, just to replace the pension it displaced — and she still has to manage market risk to get it.
This is the trap in one number. Note that the income test runs in parallel: the $300,000 is also a financial asset and is “deemed” to earn income (lower deeming rate 1.25% on the first $64,200 of financial assets, 3.25% above — Services Australia — Deeming). For Barbara the assets test bites harder, so that’s the test Centrelink applies. For someone with fewer assets but more deemed income, the income test could be the one that cuts the payment instead.
Before and after, side by side
| Before (home) | After ($300k in super) | |
|---|---|---|
| Home value | $850,000 (exempt) | $550,000 unit (exempt) |
| Assessable assets | $290,000 | $590,000 |
| Over full-pension limit | $0 | $268,500 |
| Fortnightly pension | $1,200.90 | $395.40 |
| Annual pension | ~$31,223 | ~$10,280 |
The 24-month sale-proceeds exemption (and its catch)
There is one important piece of relief, but it’s widely misunderstood. If you sell your principal home and intend to use the proceeds to buy, build or renovate a new principal home, the portion earmarked for that purpose is exempt from the assets test for up to 24 months (with a possible further 12-month extension if you genuinely can’t complete the purchase in time). During this window you’re still treated as a homeowner. This applies to homes sold on or after 1 January 2023.
The 24-month relief only covers the assets test. The exempt proceeds are still subject to the income test — they are deemed to earn income at the lower deeming rate the whole time they sit in your bank account. And critically: the moment you contribute that money to super, the exemption is gone. Super is not “proceeds set aside to buy a home” — it’s a financial asset, assessed in full immediately. Source: DSS Social Security Guide 4.6.3.90.
So the exemption that could have protected Barbara’s money for two years while she found a new place evaporates the day she does the downsizer contribution. The exemption is designed to help people who are between homes, not people parking the difference in super.
Strategy: downsizing into a cheaper home vs renting after the sale
The right move depends on what you do with the freed-up cash and whether you stay a homeowner. Three broad paths:
1. Downsize and keep most of the equity in a (still-exempt) home
If Barbara had bought a $750,000 unit instead of a $550,000 one, only $100,000 would be left over. Her assessable assets would be $390,000 — just $68,500 over the limit — cutting her pension by about $205.50 a fortnight rather than $805.50. The bigger the share of equity you keep inside an exempt home, the more pension you keep. The downsizer contribution actively works against this by pushing equity into a fully assessable form.
2. Downsize and contribute the surplus to super
This is the path that triggers the trap. It can still be right if you’re not (and won’t become) eligible for the pension — for example, if you already have well over $722,000 in assessable assets and get no pension anyway, the tax shelter of super is a clear win. For a part-pensioner near the threshold, model the pension loss first; it frequently swamps the tax benefit.
3. Sell and rent
Selling up to rent removes your exempt home entirely, which sounds disastrous for the assets test — but remember non-homeowners get a much higher asset allowance ($579,500 full-pension limit vs $321,500). That extra ~$258,000 of allowance softens the blow. The real cost of renting is the income test and your weekly rent, partly offset by Rent Assistance. Renting can suit people who want maximum flexibility and liquidity, but it rarely beats keeping wealth in an exempt home if staying a homeowner is realistic.
- Your home is invisible to the assets test; super is fully visible. A downsizer contribution simply moves money from one to the other — and Centrelink can now count it.
- Run the taper before you contribute: every $1,000 of assessable assets over the limit costs $3 a fortnight ($78 a year). $300,000 over the limit can wipe out the entire pension.
- The 24-month sale-proceeds exemption only covers the assets test, only for money earmarked for a new home, and ends the instant the money goes into super.
- Keeping equity in an exempt (cheaper) home usually preserves more pension than contributing the surplus to super, for anyone receiving or expecting a part pension.
- The downsizer contribution is built for people who don’t qualify for the pension — for them it’s a tax win with no Centrelink downside. For pensioners, model both tests first.
How to check this for your own situation
- List your current assessable assets (everything except your home).
- Add the amount you’d contribute to super after the sale.
- Subtract the full-pension limit for your situation from the table above.
- Divide the excess by $1,000 and multiply by $3 — that’s your fortnightly pension cut under the assets test.
- Run the income test too (deeming) and take whichever produces the lower pension.
- Compare that pension loss against the tax saved by holding the money in super. If the loss is bigger, the downsizer contribution is costing you money.
Because this is a permanent decision — you can only make one downsizer contribution per home sale — it’s worth confirming the numbers with Services Australia’s payment estimator or a licensed financial adviser before you sign.
Frequently asked questions
Does a downsizer contribution reduce my Age Pension?
It can, often significantly. The contribution moves money from your exempt home into super, which is a fully assessable asset. If your assessable assets then exceed the full-pension limit ($321,500 for a single homeowner from 20 March 2026), your pension reduces by $3 a fortnight for every $1,000 over the limit. The same money is also deemed to earn income under the income test.
Is the family home really exempt from the Age Pension assets test?
Yes. The principal home you live in is not counted in the assets test, regardless of its value, according to Services Australia. This is exactly why moving that wealth into super — which is counted — can cut your pension even though your total wealth hasn’t changed.
How much can I contribute under the downsizer rules?
Up to $300,000 per person ($600,000 for a couple) from the sale of a qualifying home, if you’re 55 or older, owned the home for at least 10 years, and contribute within 90 days of receiving the proceeds. It doesn’t count toward your contribution caps. Source: ATO.
What is the 24-month home-sale-proceeds exemption?
For homes sold on or after 1 January 2023, sale proceeds you intend to use to buy, build or renovate a new principal home are exempt from the assets test for up to 24 months (with a possible 12-month extension), and you stay classed as a homeowner. But the proceeds are still subject to the income test via deeming, and the exemption ends the moment the money is contributed to super.
Is it better to keep my money in a cheaper home or put it in super?
For anyone receiving or expecting a part pension, keeping more equity inside an exempt home generally preserves more pension, because the home isn’t assessed while super is. The downsizer contribution mainly benefits people who don’t qualify for the pension at all, where the tax shelter has no Centrelink downside.
Will renting after I sell change my assets test limits?
Yes. Non-homeowners get a higher asset allowance — $579,500 for a single non-homeowner vs $321,500 for a homeowner (from 20 March 2026) — which partly offsets losing the exempt home. You may also qualify for Rent Assistance. Whether renting beats downsizing depends on your rent, liquidity needs, and whether staying a homeowner is realistic.
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