Productivity Commission Research Paper

5 Tax & Transfer Treatment Of Retiree Housing

Retiree Housing Key Tax points

  • In general, the tax and transfer treatment of housing in Australia favours home ownership over renting and over investment in other assets.
  • The exclusion of the principal residence from the means test for the Age Pension may encourage investment in housing at the expense of other assets, and provides a marginal disincentive for older Australians to downsize to a home better suited to their needs and preferences.
    – In principle, including the full value of the principal residence in the Age Pension assets test would improve efficiency and equity.
    – However, given that support for home ownership is embedded in many government policies and in people’s retirement planning, removing the exemption entirely in the immediate future is intractable.
    – At a minimum, there is a strong case on equity grounds for setting limits on the value of the principal residence that is exempt from the Age Pension means test.
  • Stamp duties act as a barrier to housing mobility, and can discourage downsizing by older Australians.
    – Stamp duty concessions, which are available in some jurisdictions of Australia, may ameliorate some of the inefficiencies of stamp duties. However, they also raise concerns about fairness.
    – There is merit, on efficiency grounds, in making the principal residence subject to land tax and removing stamp duties on housing transfers.
    The inconsistencies in the treatment of assets across means tests for home care, residential aged care and the Age Pension result in mixed incentives, and are a source of unnecessary administrative complexity and confusion for older Australians — especially given that the means tests for the Age Pension and residential aged care are complex in their own right.
    • There are equity grounds for incorporating the full value of a resident’s former principal home in the means test for aged care.