For most retirees, the family home is both the largest asset and the one Centrelink ignores — it’s exempt from the Age Pension assets test. So selling it raises an understandable fear: the moment the sale settles, hundreds of thousands of dollars land in the bank as an assessable asset, and the pension could be slashed overnight.
The good news is that Centrelink anticipated exactly this problem. If you’re selling to buy, build or renovate another home, there’s a concession — often called the principal home sale proceeds exemption, or the “2-year rule” — that protects those funds from the assets test while you transition. Used well, it lets you downsize or relocate without losing your pension in the gap between homes.
But it’s narrower and more nuanced than most people assume, and getting the details wrong can cost you. This guide explains how the exemption works, what it does and doesn’t cover, and the traps that catch retirees out.
Why Selling Your Home Can Threaten Your Age Pension
Your principal home is exempt from the Centrelink assets test. Cash in the bank is not. So without a special rule, selling your home would convert an exempt asset into an assessable one the instant the sale completes — potentially pushing you over the assets test limits and reducing or cutting off your Age Pension.
That would discourage retirees from ever downsizing, which is the opposite of what government policy wants. So a specific exemption exists to bridge the transition.
How the 2-Year Exemption Period Works
For homes sold on or after 1 January 2023, funds intended for a new principal home are exempt from the Age Pension assets test for up to 24 months from settlement.
The key features:
The exemption starts on settlement. For the sale of your former principal home, the 24-month period begins on the settlement date.
You remain a homeowner during the exemption period. Even though you’ve sold and don’t yet own a new home, Centrelink continues to assess you under the homeowner assets test thresholds, which can affect your limits.
Only the intended portion is protected. If you sell for $900,000 and plan to spend $700,000 on your next home, you must declare that intent to Centrelink, and only that $700,000 is exempt. The remaining $200,000 is an assessable asset straight away. Centrelink may also ask for evidence such as contracts, building agreements or renovation plans to support the intended use.
An extra 12 months may be available as an extended exemption. If you’ve made reasonable attempts to buy or build within a reasonable period but have experienced delays beyond your control, the exemption can be extended to a maximum of 36 months.
If circumstances change and you no longer intend to use the funds for the new home, the principal home exemption ends from that date.
The Deeming Trap: Exempt From the Assets Test, Not From Income
This is the single most misunderstood part of the rule, and it catches people out constantly.
The exemption protects your proceeds from the assets test — but it does not protect them from the income test. While the money sits in your bank account waiting to buy a new house, deeming rates apply to those cash proceeds held while you wait to purchase the new home, and Centrelink still applies deeming: it assumes the funds earn a set rate of income regardless of what they actually earn.
There is a concession here, though: even during the exemption period, Centrelink applies deeming rules to the exempt proceeds, but they are deemed at the lower deeming rate only, and they’re quarantined from your other financial assets (which may be deemed at the higher rate). So while your home-buying funds won’t be counted as an asset, they can still nudge your assessed income up and reduce your pension slightly under the income test, regardless of the sale value.
The practical upshot: the 2-year exemption is a powerful assets-test shield, but it’s not a complete protection. You need to model both tests to know your real pension position during the transition.
Rent Assistance While You Wait
Here’s a lesser-known bonus. Normally, homeowners can’t receive Commonwealth Rent Assistance. But during the sale proceeds exemption period, if you’re renting while you wait to buy or build, Rent Assistance may be payable — even though you’re still classed as a homeowner. If you’re paying private rent above the minimum threshold in the gap between homes, this is worth claiming and easy to overlook.
What the Exemption Does NOT Cover for Home Sale Proceeds
The concession is specific, and several situations fall outside it:
Money you’re not putting into a home. The portion of sale proceeds not intended for buying a new home is an assessable asset, and any surplus funds become assessable immediately if they are not allocated to the purchase, build or renovation.
Selling an investment property. The exemption applies only to your principal home, not to investment or other property. Where a residence sits on more than 2 hectares, the excess land is generally included in the assets test.
Both the home and proceeds can’t be exempt. Under Centrelink’s principal home exemption rules, you cannot have both your current home and the sale proceeds exempt at the same time.
Moving into residential aged care (single person). If a single person sells their home intending to use the proceeds to pay a lump-sum accommodation deposit (RAD) in aged care, Centrelink does not treat this as buying a new home, so the sale proceeds exemption does not apply — the proceeds are assessed immediately, and the person is treated as a non-homeowner. In a care situation, special rules can apply to a former home, including rental income and accommodation costs, but those rules are different from the 2-year sale proceeds exemption. This is a critical distinction for anyone weighing downsizing against a move into care.
Simply spending down savings. If you didn’t sell a home but just used existing cash toward a purchase, different rules apply.
The Downsizer Contribution Alternative
The 2-year exemption isn’t the only tool. For many retirees, part of the answer is the downsizer contribution, which lets eligible people aged 55 and over contribute up to $300,000 each (up to $600,000 for a couple) from the proceeds of selling their home into super, separate from retirement villages, where an entry contribution and ongoing costs can affect whether you are treated as a homeowner or non-homeowner.
Money inside super in the accumulation phase is treated differently for Centrelink, and an account-based pension offers a tax-free earnings environment. Combining the sale proceeds exemption with a downsizer strategy — deciding how much to put into the new home, how much into super, and how much to keep accessible — is where the real planning happens. The wrong split can cost you pension entitlements or lock money away you needed; the right split can preserve your pension and improve your long-term income. Similar issues can also arise with granny flats or a granny flat interest, where the legal interest, reasonable security of tenure, and ability to derive benefit matter for Centrelink treatment.
Traps and Things Retirees Miss
Not notifying Centrelink promptly. You should tell Centrelink about the sale within 14 days of settlement and declare how much you intend to spend on the new home. If your circumstances change later, you must update Centrelink because this can affect the exemption. Miss this and your assessment can go wrong.
Assuming the whole amount is protected. Only the portion earmarked for the new home is exempt; surplus is assessed immediately.
Forgetting the deeming hit. Exempt from assets doesn’t mean exempt from income — deeming still applies.
Not updating balances as they fall. Centrelink doesn’t see your bank balance live. As the exempt funds are spent down, you need to report the lower balance so your deemed income is corrected.
Confusing downsizing with moving into care. The aged care scenario is treated completely differently, and getting this wrong can be very expensive.
Letting the clock run out. If you do not buy within 24 months, the proceeds become assessable as assets unless an additional 12-month extension has been approved.
How Money Path Can Help
Selling the family home in retirement is rarely just a property decision — it’s a pension decision, a tax decision, and often an aged care decision, all at once. The 2-year exemption is generous, but it interacts with deeming, homeowner status, Rent Assistance, downsizer contributions and the assets test in ways that are easy to get wrong and costly to unwind.
At Money Path, we model your full position before you sell. We work out how much of the proceeds to direct into the new home, into super via a downsizer contribution, or elsewhere — and show the pension and income-test consequences of each option. We make sure you claim everything you’re entitled to during the transition, including Rent Assistance if you’re renting in between. And for clients where aged care is on the horizon, we flag the critical difference between downsizing and funding a RAD, so you don’t accidentally forfeit an exemption.
Most importantly, we help you decide before contracts are exchanged, when you still have every option open. Once the home is sold, some choices can’t be undone.
If you’re thinking about selling, downsizing or relocating in retirement, talk to the team at Money Path first. A short conversation can protect your pension and save you far more than it costs.
Frequently Asked Questions
How long are my home sale proceeds exempt from the Centrelink assets test? For homes sold on or after 1 January 2023, the portion of proceeds you intend to use for a new principal home is exempt from the assets test for up to 24 months from the sale. If you’ve made genuine attempts to buy or build but are delayed by circumstances beyond your control, this can be extended to a maximum of 36 months.
Is all the money from selling my home protected? No. Only the portion you intend to spend on buying, building or renovating your new home is exempt. Any surplus you don’t plan to put into a home is assessed as an asset immediately. For example, if you sell for $900,000 and plan to spend $700,000 on the next home, the extra $200,000 counts straight away.
Is the exempt money still affected by deeming? Yes. The exemption applies only to the assets test, not the income test. While the proceeds sit in your bank account they’re still subject to deeming — but at the lower deeming rate only, and quarantined from your other financial assets. So they can still slightly reduce your pension under the income test.
Can I get Rent Assistance while I’m between homes? Possibly. Although homeowners normally can’t receive Rent Assistance, during the sale proceeds exemption period you may be eligible if you’re paying private rent above the minimum threshold while waiting to buy or build. It’s worth checking, as it’s easily missed.
Does the exemption apply if I’m selling to move into aged care? Generally not for a single person paying a lump-sum accommodation deposit. Centrelink doesn’t treat funding a RAD as buying a new home, so the sale proceeds exemption doesn’t apply and the proceeds are assessed immediately. This is a very different situation to downsizing and needs careful, specific advice.
What if I don’t buy a new home within two years? If you sell your home and haven’t purchased, built or renovated within 24 months (or 36 months with an approved extension), the remaining proceeds lose the exemption and become assessable as assets under the assets test, unless a valid extension applies.
Can I put the proceeds into super instead? Eligible people aged 55 and over can make a downsizer contribution of up to $300,000 each from the sale of their home. How proceeds are treated in super differs from cash in the bank, and combining a downsizer strategy with the sale proceeds exemption is often the most pension-effective approach — but it needs to be planned around your specific circumstances.
Do I need to tell Centrelink when I sell? Yes. You should notify Services Australia (generally within 14 days of settlement), for tax purposes and Centrelink reporting purposes, declare how much you intend to spend on the new home, and update them as you spend the funds down, since they don’t have live access to your bank balance.
This article is general information only and does not take into account your personal circumstances. Centrelink rules, deeming rates and thresholds change and are current as at the date of writing. Always confirm current details with Services Australia, and seek personal financial advice before selling or downsizing.
