Your principal home and Centrelink: how the exemption works, and what happens when you sell, downsize, or move to care

The exemption of the principal home from the Age Pension assets test is one of the defining features of Australia's retirement income system. The principal home — the dwelling and the adjacent land — is an exempt asset regardless of its value. A retiree with a $5 million home and modest other assets receives the same Age Pension entitlement as a retiree with a $400,000 home and the same other assets. The structural consequence is that Australians disproportionately accumulate and hold their wealth in their homes in the years approaching and during retirement. Decisions to sell, downsize, renovate, or move to aged care each interact with the assets test in specific ways — and the size of the impact often surprises people.

The assets test applies different thresholds to homeowners and non-homeowners, recognising that a non-homeowner needs more assets to fund ongoing housing costs. Following the 1 July 2026 indexation, the full pension threshold for a single homeowner is $333,000 — meaning a single homeowner with up to $333,000 in assessable assets (excluding the home) receives the full Age Pension. For a single non-homeowner, the equivalent threshold is $600,000 — a gap of $267,000. The part pension cut-off (where Age Pension reduces to zero) is $733,500 for a single homeowner and $1,000,500 for a single non-homeowner. For a couple combined, the full pension threshold is $499,000 (homeowner) or $766,000 (non-homeowner), with cut-offs of $1,102,500 and $1,369,500 respectively. Between the full pension threshold and the cut-off, the Age Pension — the means-tested government payment administered by Services Australia — reduces at $3 per fortnight for every $1,000 in excess assets.

What actually counts as your principal home?

The principal home is the place where the person normally lives. Only one home can be the principal home at a time — it is a test of fact and intention, not a formal election. A person who owns a city apartment and a holiday house and lives primarily in the city apartment holds the apartment as their principal home (exempt) and the holiday house as an investment property (assessable at market value). Holiday absences, hospital stays, and short visits generally don't change this classification. A home left vacant for an extended period with no intention to return may lose exempt status.

How much adjacent land can be exempt?

The adjacent land rules contain an important distinction. Under the private land use test, the maximum amount of land adjacent to the principal home that can be exempted is two hectares, provided the land is on the same title document and used primarily for private or domestic purposes. For age pensioners, a more generous rule has applied since 1 January 2007: the extended land use test allows all land on the same title document as the principal home to be exempt, provided certain conditions are met — including, under the long-term attachment provisions, 20 years of continuous use. For retirees with rural properties or larger suburban blocks, the distinction between what sits on the same title document and what doesn't can determine whether significant land area is exempt or assessable.

What happens to the assets test when you sell?

When the principal home is sold, the proceeds immediately become assessable assets. A home worth $1.2 million that was entirely exempt becomes $1.2 million in cash, fully subject to the assets test and deeming. There is a specific protection: proceeds from selling the principal home that are genuinely intended to be used to purchase, build, rebuild, repair, or renovate a new principal home can be exempt from the assets test for up to 24 months from the date of settlement (for homes sold on or after 1 January 2023). Only the portion of the proceeds earmarked for the new home is exempt — if a person sells for $1 million and intends to put $700,000 into a new home while keeping $300,000 for other purposes, only the $700,000 is eligible for the exemption. During the exemption period, the person continues to be assessed as a homeowner, not a non-homeowner. Once the new home is purchased or the proceeds are applied, the exemption ends. If the person abandons the intention to purchase a new home, the exemption ends on that date. For pensioners selling without planning to buy again — for example, to move into long-term rental — the full proceeds are assessable from settlement.

Notably, the sale proceeds exemption also covers proceeds intended to fund a place in residential aged care via a Refundable Accommodation Deposit (RAD). This can be a meaningful planning tool for pensioners selling their home in preparation for an aged care move.

How does downsizing affect the assets test?

Downsizing from a more expensive home to a less expensive one creates surplus cash. The surplus — once it is no longer earmarked for the new principal home — becomes assessable and attracts deeming under the income test. Some of it can be contributed to superannuation via the downsizer contribution: members aged 55 or older who have owned and lived in their home for at least ten years can contribute up to $300,000 each from the sale proceeds. But downsizer contributions are themselves assessable as super assets — contributing to super moves the money from one assessable bucket to another. The real issue with downsizing is the shift from a large exempt asset to a smaller exempt asset plus a new assessable balance. A retiree with a $1.5 million home and $300,000 in other assets who downsizes to a $1 million home and adds $500,000 to financial assets may see their Age Pension entitlement fall substantially. This isn't necessarily a reason not to downsize — sometimes it is the right call for lifestyle, practical, or health reasons — but the trade-off should be understood before the decision, not after.

Can home improvements reduce assessable assets?

Spending money on improvements to the principal home converts assessable cash into an exempt asset. A retiree with $80,000 in savings sitting above the assets test threshold who spends that amount on renovating the kitchen and bathroom has removed $80,000 from assessable assets and improved a home they can enjoy. This is a legitimate strategy that many retirees near the threshold use, particularly in the years before pension eligibility or when their asset position changes. Like any strategy it must be weighed against liquidity needs and genuine utility — spending just to reduce assessable assets is only worthwhile if the spending would have happened anyway.

What happens to the home exemption when moving to aged care?

When a pensioner moves to residential aged care, the principal home does not automatically cease to be exempt. If a partner continues to live in the home, the home remains the partner's principal home and is exempt for as long as the partner resides there. Where the pensioner moves to care alone and the home becomes vacant, the home continues to be exempt for a two-year period from the date of entry into the care situation. After two years, the home becomes assessable unless an extension applies. For couples where both partners move to care, the two-year period runs from the date the later of the two partners entered care. Separately, the aged care fees framework — which is administered through the means-tested care fee system — treats the home differently from the Age Pension framework. A home may be exempt for Age Pension purposes while also being partially included in the aged care means test. Retirees and their families navigating this intersection need coordinated advice from a financial adviser with aged care experience; the two frameworks can produce very different results for the same home.

The principal home exemption has attracted periodic political discussion, with proposals for a cap on the exempt value, adjustments to the homeowner/non-homeowner threshold gap, and greater integration with the Home Equity Access Scheme. As at 1 July 2026, the exemption remains uncapped — there is no upper limit on the value of a principal home that can be exempt from the assets test. No cap has been enacted.

Sources

• Services Australia — Assets test for age pension
• DSS Social Security Guide 4.6.3.10 — Principal home
• DSS Social Security Guide 4.6.3.90
• DSS Social Security Guide 4.6.8.10
• DSS Social Security Guide 4.6.3.70
• DSS Social Security Guide 4.2.3