4.6.3.90 Exempting the principal home - sale proceeds (for homes sold on or after 01/01/2023)
Note: The information on this page applies to homes sold on or after 1 January 2023. For information on the sale proceeds exemption for homes sold before 1 January 2023, see 4.6.3.80.
Summary
This topic covers the following and applies to homes sold on or after 1 January 2023:
- the definition of principal home sale proceeds
- when the principal home sale proceeds exemption can apply
- the 24-month exemption of principal home sale proceeds
- the exemption of principal home sale proceeds beyond 24 months
- homes sold before 01/01/2023 – maximum sale proceeds exemption period is 24 months
- income test rules for sale proceeds held in a financial investment.
Policy reference: SS Guide 4.6.3.30 Defining the principal home
Definition of principal home sale proceeds
Principal home sale proceeds can include:
- funds from the sale of the principal home that are held in a financial investment, which the income support recipient intends to be applied to purchase, build, rebuild, repair or renovate a new principal home, and
- payments that have been applied to build, rebuild, repair or renovate a new principal home.
Intention to apply sale proceeds
Only the value of principal home sale proceeds that are intended to be used to purchase, build, rebuild, repair or renovate a new principal home can be exempt under the assets test.
Example: Geoff sells his principal home for $650,000. Geoff intends to purchase a new principal home for $550,000 and to spend $100,000 on establishing a new business venture. Given Geoff only intends to use $550,000 of the sale proceeds to purchase a new principal home, the total amount of sale proceeds that can be exempt from the assets test is $550,000. The $100,000 is NOT exempt from the assets test.
Application of sale proceeds
The value of principal home sale proceeds that have been applied to build, rebuild, repair or renovate a new principal home can be exempt under the assets test. This could include the value of:
- the residence or partially finished residence that is in the process of being built, rebuilt, repaired or renovated
- a structure on the land to the extent that the structure was built before the person began applying the sale proceeds, and
- land on which the new principal home is to be built, rebuilt or repaired. Land that was purchased prior to receiving the sale proceeds (whether owned outright or mortgaged) can be exempt once the principal home sale proceeds have been received.
Example: Aya purchased a block of land for $150,000 prior to selling her principal home. Aya sells her principal home, and $750,000 was received on 30 January 2023 at settlement. Aya uses the money to pay off the mortgage on the block of land. The balance of the settlement money is placed into a bank account. Aya intends to use the settlement money to build a home on the block of land. In this case, the block of land and the money in the bank account can be exempt from 30 January 2023. The lower deeming rate will apply to the sale proceeds that remain in the bank during the sale of proceeds exemption period.
The maximum total asset value that may be exempt is the value of the proceeds of the sale of the former principal home.
Example: The maximum asset value that Aya can have exempted is $750,000, which includes the value of the block of land.
For couples, where one member of the couple intends to or has applied the proceeds, then their partner will also be regarded as intending to apply, or having applied the proceeds.
Act reference: SSAct section 1118(1B) Application of proceeds of sale of principal home
When the principal home sale proceeds exemption can apply
The principal home sale proceeds exemption only applies if:
- a person sells their principal home, and
- the person does not have a right or interest in their principal home, or
- that right or interest does not give the person reasonable security of tenure.
Explanation: A person can only gain access to the principal home sale proceeds exemption if they do not have another principal home.
If a person has sold their principal home and is living in another home they own, they CANNOT gain both a principal home exemption on the home they are currently living in as well as an exemption on the principal home sale proceeds. In this situation, either the home they are currently living in or the principal home sale proceeds will be exempt from the assets test, but not both. The one which is exempt depends on what property the income support recipient intends to be their new principal home.
Example: Joan sells her principal home and intends to use the sale proceeds to build a new home. Joan moves into another home that she owns. Joan cannot gain a principal home exemption on the home she is living in as well as having the sale proceeds exempt from the assets test. In this case, Joan intends her principal home to be the one she builds with the sale proceeds. Therefore, given Joan does not intend the home she is currently living in to be her principal home, it will be assessed as an asset. The sale proceeds that will be used to build her new principal home will be exempt from the assets test.
Act reference: SSAct section 1118(1B) Application of proceeds of sale of principal home
Exemption of principal home sale proceeds - 24 months
From 1 January 2023, if a person sells their principal home, the portion of the proceeds intended to be used for the new principal home can be exempt from the assets test for up to 24 months.
For the 24-month asset test exemption to apply, a person must have sold their principal home on or after 1 January 2023.
When the principal home sale proceeds exemption starts
The principal home sale proceeds are exempt from the date of settlement. The person continues to be assessed as a homeowner during the exemption period.
When the principal home sale proceeds exemption ends
The principal home sale proceeds exemption ends when either:
- the new principal home has been purchased, or where the sale proceeds were intended to be used for building, rebuilding, repairing or renovating the new principal home, the build, repair or renovation of the new principal home have been completed, or
-
Example: The settlement on a new home purchase occurs.
-
Example: The person moves into their new home.
-
- the person ceases to have an intention to apply the proceeds to purchase, build, rebuild, repair or renovate a new principal home
whichever occurs first.
Example: Lyn and her partner sell their principal home on 6 January 2023 with the intention of purchasing a new principal home. If on 31 December 2023, they instead decide not to purchase a new principal home but use the money for other purposes (for example, to purchase a campervan and travel around Australia), the principal home sale proceeds exemption will cease on 31 December 2023, the date when the intention to purchase a new principal home ceased.
If a person has sold their principal home by instalments or the payment is deferred, ONLY those payments received within 24 months of the sale date are exempt from the assets test.
Act reference: SSAct section 1118 Certain assets to be disregarded in calculating the value of a person's assets, section 1118(2) Application of proceeds of sale of principal home
Exemption of principal home sale proceeds beyond 24 months
For homes sold on or after 1 January 2023, if the person has not been able to purchase, build, rebuild, repair, or renovate a new principal home within 24 months of settlement, the principal home sale proceeds CAN be exempt from the assets test for up to another 12 months, subject to the person meeting certain criteria.
For homes sold on or after 1 January 2023, the maximum sale proceeds exemption period is 36 months.
Act reference: SSAct section 1118(2B) Application of proceeds of sale of principal home
Criteria to gain extended exemption
To gain an extended principal home sale proceeds exemption of up to 36 months, the person must have a continuing intention to apply the proceeds of the sale to purchase, build, rebuild, repair or renovate a new principal home and also have:
- made reasonable attempts to purchase, build, rebuild, repair or renovate their new principal home
- been making those attempts within a reasonable period after selling the principal home, and
- experienced delays beyond their control in purchasing, building, rebuilding, repairing or renovating their new principal home.
All of the above criteria MUST be met. If one of the above criteria is not met then the person CANNOT gain an extended principal home sale proceeds exemption for up to 36 months.
Making reasonable attempts
A person would be considered to be making reasonable attempts to purchase, build, rebuild, repair, or renovate their new principal home IF they entered into some form of agreement including:
- signing a contract of sale to purchase a house
- purchasing or signing a contract to purchase a block of land to construct a house on
- signing a contract with a builder to construct or rebuild a house, or house and land package, or
- contracting or accepting a quotation from a tradesman to undertake repairs or renovations.
The person will be required to provide some documentary evidence (when the extended exemption period is being requested) to demonstrate that they have been making reasonable attempts.
Example: A copy of the agreement/acceptance of quotation to rebuild a new home.
Exception: In special circumstances a person may be considered to be making reasonable attempts to purchase, build, rebuild, repair, or renovate their new principal home if they have been unable to enter some form of an agreement. These circumstances include where the person has:
- experienced delays relating to the purchase, construction, rebuilding, repair or renovation of the new principal home
Example: Delays in gaining building approval from the local shire council that is required prior to entering into an agreement with the builder.
- been absent from the place they intend to purchase, build, rebuild, repair or renovate their new home due to reasons beyond their control
Example: Caring for a close family member in a separate location to the place where they were to build their new principal home.
- had changes in health that have had a major bearing on the individual's circumstances, or
Example: Being hospitalised for an extended period.
- been unable to gain a commitment/enter into an agreement with a builder because demands in the building industry are stretched in a particular geographic area.
Example: After a natural disaster.
The person will be required to provide some documentary evidence for special circumstances to apply.
Example: A copy of correspondence from the local shire council.
Making reasonable attempts within a reasonable period
The person must have made reasonable attempts to purchase, build, rebuild, repair or renovate a new principal home within a reasonable period after selling the principal home.
Explanation: The person must have taken action towards entering into some form of agreement to purchase, build, rebuild, repair, or renovate a new principal home, within 12 months from the date of the sale. Taking action could include: plans being developed by an architect or draftsman, obtaining quotes from builders, attending open houses, contacting real estate agents about house and land packages available.
The person may be required to provide some documentary evidence (when the extended exemption is being requested) to demonstrate that they have been making attempts within a reasonable time period.
If a person has NOT made reasonable attempts within a reasonable time period, that is, 12 months from the date of sale, the extended exemption CANNOT apply.
Example: Sam and Jenny sell their principal home. The date of settlement is 6 January 2023. Sam and Jenny travel overseas shortly after, and intend to return to Australia in July 2024 (that is, 18 months later). They enter into a contract to purchase a new home on 6 March 2024 with settlement due on 1 May 2024. Sam and Jenny cannot gain the extended exemption period for the principal home sale proceeds. Whilst they made reasonable attempts (that is, they entered into a contract of sale to purchase a new home within 24 months of the settlement date), they did not make those attempts within a reasonable period (that is, 12 months) from the settlement date.
Experienced delays beyond their control
A person would be considered to have experienced delays beyond their control if they have been unable to commence or complete the purchase, construction, repair, rebuilding, or renovation of their home due to delays in the building industry.
Determining a time period for the extended exemption
A person can only gain the maximum principal home sale proceeds exemption period of 36 months if they sold their principal home on or after 1 January 2023. The maximum 36 months includes the original 24 months exemption period and up to a further 12 months’ extended exemption period.
The exact length of time that the extended exemption period will apply for will depend on the special circumstances having regard to when the person anticipates, or the contract stipulates, the purchase, building, rebuilding, repair or renovation of the new home will be complete.
If a person's new home is still not complete, the time period can be further extended provided the criteria continues to be met and the overall timeframe does not exceed the total allowable maximum 36-month exemption period.
When the extended exemption ends
The extended principal home sale proceeds exemption ends when either:
- the person ceases to have an intention to apply the proceeds to purchase, build, rebuild, repair or renovate a new principal home
- a new principal home is purchased, or where the sale proceeds were intended to be used for building, rebuilding, repairing or renovating the new principal home, the build, repair or renovation of the new principal home is complete, or
- the determined extended time period expires
whichever occurs first.
Act reference: SSAct section 1118(1B) Application of proceeds of sale of principal home
Homes sold before 01/01/2023 – maximum sale proceeds exemption period is 24 months
If a person sold their principal home prior to 1 January 2023, the sale proceeds exemption period is 12 months.
If a person with a 12 months’ sale proceeds exemption period for a principal home sold prior to 1 January 2023 is still in the process of purchasing, building, repairing, rebuilding or renovating a new principal home but is experiencing delays beyond their control, they can still request an extended assets test exemption of up to 12 months if they meet the criteria for the extension. The maximum exemption period in these cases is 24 months.
Policy reference: SS Guide 4.6.3.80 Exempting the principal home - sale proceeds (for homes sold between 01/07/2007 & 31/12/2022)
Income test rules for sale proceeds held in a financial institution
Any amount of the principal home sale proceeds that is held in a financial investment is subject to deeming.
The deeming rules are used to assess income from financial investments for social security purposes. Even though principal home sale proceeds can be exempt from the assets test for up to 36 months, the proceeds will still be subject to deeming under the income test.
For homes sold on or after 1 January 2023, only the lower deeming rate (currently 0.25%) will be applied to principal home sale proceeds during the period of the assets test exemption.