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How to down-size and duck the taxman

The easy way to live happier, simpler and wealthier

 You're not alone, many Australian's would like to see their years of hard work that has been put into paying off their mortgage convert into a nice pay day when they sell the big (and now empty) family home to purchase something smaller.
There are plenty of reasons why moving into a smaller home makes sense for retirees. A smaller house comes with less rooms to clean and likely smaller energy bills. It's often easier to move about in a smaller space, which means a better quality of life too.
The cheaper living costs are just plain smart, but the main reason is unlocking the value you have in your big old family home. That can be used to really live the good life; new wardrobe, road trips, international holidays, big toys and surprising gifts.
With the new Government Scheme announced in May 2013, during the Federal budget, retirees can now downsize their house, without affecting their Age Pension. Australians who have owned their house for more than 25 years can downsize their residential, without having to pay any kind of tax towards the proceeds of the downsize.
Great news, but what does that mean for you and I?
For example, if a coupe sells their 25 year old house for $500,000 and buys a smaller house for $300,000, the remainder of $200,000 can be deposited into a special bank account.
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, if a withdrawal was made from the account the money would no longer be exempt from the age pension means test.
Adults moving into retirement villages and granny flats can also benefit from this scheme, unfortunately, those moving into age-care facilities will not benefit from this scheme for now. So make sure you're discussing your plans with the kids.
While this scheme seems to be extremely beneficial on the face it's not all roses, if you are thinking of downsizing, think about the cost of buying and selling in the same market.
There will be furniture removal costs, stamp duty, legal fees, estate agent fees and inspection fees.
Another drawback to this scheme is the fact that it only allows for access up to $200,000 to be deposited in the special bank account. Any access over and above this figure will still be taxable.
Given the current real estate market, there are high chances that the house will generate decent amount of money, meaning that they retirees might end up with more than $200,000.
There are two ways that you can avoid this situation, one is to stay put and not downsize at all; or to downsize only to a level where you end up with excess of only $200,000.
Obviously there are some great reasons for downsizing, and this scheme can be extremely beneficial, but just look at all the possibilities, take all the costs into consideration, before making your final decision.
Are you sitting on your largest investment to date? Is it time to cash-in?
Do you know anyone who has made the decision to sell-up and move on or down?
Do you know a friend this would be perfect for? Share this post with them now.
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