Federal Budget 2017: Retirees given $300,000 incentive to downsize

Retirees holding onto their family homes have been given a $300,000 incentive to sell under a federal budget plan to encourage older property owners to downsize.

Home owners aged 65 and over selling a home they have lived in for 10 or more years will be able to make a non-concessional contribution of up to $300,000 into their superannuation from the proceeds of the sale.

Both members of a couple are allowed to take advantage of this measure for the same home.

The aim of this incentive is to to reduce the barrier to downsizing for the baby boomer generation, many of whom are living in homes with extra bedrooms and sizable maintenance costs.

If these downsizers sell, it would free up larger homes and housing stock for younger families upgrading into more suitable real estate.

Encouraging baby boomers to move into more suitable housing has long been a heated discussion point in the affordability debate.

But it would mean downsizers would be required to find new homes to move into - be it a tree- or sea-change, or follow the more recent trend to buy an inner-city bolthole.

Typically, older home owners have been reluctant to sell for both sentimental and financial reasons. Often selling property is costly and funds left over after buying a smaller home could then be considered in the means test.

For those whose homes have grown in value significantly over the past 10 years - in many cases for Sydney home owners more than doubling in price - this can prove a hurdle.

The new incentive is in addition to concessions already permitted and will be exempt from the age test, work test and $1.6 million balance test.

It is estimated to have a $30 million revenue cost over 2019-20 and 2020-21.