Selling a home to downsize gives a 24-month (extendable to 36) Age Pension assets test exemption on proceeds earmarked for a replacement home — but the income test keeps running, deeming those proceeds at the below-threshold rate. Surplus proceeds not going toward the new home get no concession at all. For pensioners whose part pension is set by the income test, the assets exemption offers little real protection.
Most retiree-facing summaries describe the rule the same way: "if you sell your home, the proceeds are exempt from Centrelink for 24 months." It's the kind of line that ends up on a brochure and makes downsizing sound clean. The trouble is, the rule is not symmetric. The exemption applies to the assets test only. The income test keeps deeming the cash. For some pensioners on a part Age Pension, that distinction is the whole game.
The mechanic is straightforward. When a pensioner sells their principal home with the intention of buying or building a new one, the portion of proceeds earmarked for the replacement home is excluded from the Age Pension assets test for up to 24 months from settlement (DSS Guide 4.6.3.90, https://guides.dss.gov.au/social-security-guide/4/6/3/90). Before 1 January 2023, the window was only 12 months. The extension was deliberate — older Australians needed more breathing room between sale and purchase, and the extra year is intended to absorb conveyancing delays, building timelines, and the simple difficulty of finding the right next place. In specific circumstances, Centrelink can grant a further discretionary extension of up to 12 months, making the maximum possible exemption period 36 months (Services Australia, https://www.servicesaustralia.gov.au/assets-test-for-age-pension?context=22526).
Here is the part the brochure version glosses over. While the proceeds sit in cash, a term deposit, or any other financial asset, they are still deemed under the income test. There is a partial concession: the proceeds earmarked for the replacement home are deemed at the below-threshold rate only — currently 1.25% per annum (effective 20 March 2026) — rather than being subject to the standard two-tier deeming that applies above the threshold (1.25% on the first $64,200 for a single, 3.25% on amounts above that) (DSS Guide 4.4.1.10, https://guides.dss.gov.au/social-security-guide/4/4/1/10). Any surplus proceeds — money from the sale that will not go into the replacement home — receive no concession at all and are subject to the standard deeming rates from day one of the sale. For a pensioner whose part pension is constrained by the income test rather than the assets test, the assets exemption provides very little protection during the gap between sale and purchase.
A worked example makes the asymmetry concrete. A retired couple sells their long-held family home for $1.2 million and plans to buy a smaller place for $900,000. They take eighteen months to settle on the right home. Across that window, the assets test sees nothing — the $900,000 earmarked for the new home is exempt, exactly as the rule promises. The $300,000 surplus is assessed as a financial asset immediately. Under the income test, the $900,000 is deemed at 1.25% — producing around $10,125 a year in deemed income — while the $300,000 surplus is deemed at the standard two-tier rates. If their part Age Pension is set by the income test, the exemption has not really protected their entitlement during the transition.
The rule also has hard edges. Only the intended-for-replacement portion qualifies for the exemption — surplus proceeds from a downsize are fully assessable as financial assets from settlement. And the 24-month window is a genuine cliff: if the new purchase has not completed by month 24 and Centrelink has not granted a discretionary extension, the entire exempt balance shifts from exempt to assessable assets overnight. For a household sitting near the assets test cut-off — $722,000 for a single homeowner or $1,085,000 for a couple homeowner as at 20 March 2026 (Services Australia, https://www.servicesaustralia.gov.au/assets-test-for-age-pension?context=22526) — that single date can mean the difference between a part pension and none.
Two practical checks before timing a sale. First: which test is currently binding? If the income test is setting the part-pension entitlement, the assets exemption is not doing the heavy lifting; deeming on the proceeds will continue to run. If the assets test is binding, the exemption is genuinely valuable — it removes a large financial asset from assessment for the duration of the window. Second: how realistic is it to close on the replacement home well inside 24 months? A long gap between sale and purchase exposes the household to the income test the entire time, and to the cliff at month 24. Building a new home, in particular, eats months quietly, and delays outside the household's control (council approvals, builder availability) are common. Factoring in a margin well before the 24-month limit is prudent planning.
The rule is genuinely helpful for downsizers, and the extension to 24 months from January 2023 is more useful than the previous 12-month window. But framing it as "no Centrelink consequences for 24 months" is the framing that gets people in trouble. The accurate version is narrower: an assets test exemption on the replacement portion, a continuing income test at the below-threshold deeming rate on those proceeds, normal deeming on any surplus, and a hard cliff at the end of the window.
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Key takeaways
- When a pensioner sells their principal home intending to buy or build a replacement, the portion of proceeds earmarked for the replacement home is excluded from the Age Pension assets test for up to 24 months from settlement — extended from 12 months prior to 1 January 2023, with a possible further 12-month discretionary extension taking the maximum to 36 months.
- The assets test exemption does not extend to the income test — proceeds earmarked for the replacement home are still deemed, at the below-threshold rate (1.25% per annum, effective 20 March 2026) rather than the standard two-tier deeming rates.
- Surplus proceeds — money from the sale not going toward the replacement home — receive no concession at all and are subject to standard deeming rates under the income test, and are assessed as a financial asset under the assets test, from the date of settlement.
- For a pensioner whose part Age Pension is constrained by the income test rather than the assets test, the sale-of-home exemption provides very little real protection during the gap between sale and purchase, since deeming on the proceeds continues regardless.
- The 24-month window is a genuine cliff: if the replacement purchase hasn't completed by then and no discretionary extension has been granted, the entire exempt balance shifts from exempt to fully assessable overnight — which can be the difference between a part pension and none for a household near the assets test cut-off.
Frequently asked questions
Does selling my home mean no Centrelink impact for 24 months?
No — that's a common misconception. The 24-month exemption only applies to the assets test, and only to the portion of proceeds earmarked for a replacement home. The income test keeps running the whole time, deeming those proceeds at the below-threshold rate, and any surplus proceeds not going toward the new home get no concession at all under either test.
How is the income test applied to my home sale proceeds during the exemption period?
Proceeds earmarked for a replacement home are deemed at the below-threshold deeming rate — currently 1.25% per annum, effective 20 March 2026 — rather than the standard two-tier rates. Surplus proceeds not intended for the replacement home receive no concession and are deemed at the standard rates from the date of sale.
What happens if I don't buy my replacement home within 24 months?
If the purchase hasn't completed by month 24 and Centrelink hasn't granted a discretionary extension (available for up to a further 12 months, for a maximum of 36 months total), the entire exempt balance shifts from exempt to fully assessable under the assets test overnight. For a household near the assets test cut-off, this can be the difference between a part pension and no pension at all.
Is the sale-of-home exemption worth relying on if I'm on a part pension?
It depends which means test is currently binding your entitlement. If the assets test is binding, the exemption is genuinely valuable, removing a large financial asset from assessment during the window. If the income test is binding, the exemption doesn't help much, since deeming on the proceeds continues throughout the exemption period regardless.