I’ve been renting my house for two years. Will I have to pay tax when I sell?

Opinion

November 11, 2026 — 5:01am

I am 72, single and planning to sell my former home, which I bought in 2007 for $860,000 following my divorce. It was my principal residence until two years ago, when I moved out and rented it. The property is going to auction in February, and the agent estimates it is now worth $1.5 million. I intend to move permanently into my beach house and give some of the sale proceeds to my children.

Will I have to pay capital gains tax because the property has been rented for the past two years? Also, if I contribute about $200,000 of the proceeds to superannuation, will I have to pay the 15 per cent contributions tax, or could it qualify as a downsizer contribution? My current superannuation balance is $1.4 million.

The good news is that the six-year capital gains tax rule allows you to continue treating a former home as your main residence for up to six years after moving out, even if you rent it to tenants. This means that, provided you do not treat another property as your main residence for tax purposes during those two years, you should be able to sell the property without paying capital gains tax.

You could certainly take advantage of the downsizer-contribution provisions, but as you are under 75 and your superannuation balance is below $2.1 million, you could also contribute the $200,000 directly to superannuation as a non-concessional contribution, using the bring-forward provisions if eligible.

No 15 per cent contributions tax applies to non-concessional contributions. This would preserve the downsizer contribution option in case you need to downsize again in the future. There are no upper age limits or total superannuation balance limits on downsizer contributions, although other eligibility conditions apply.

A hypothetical for you: our group of six are all pensioners and members of a local club that we regularly visit for meals and a chat. The club holds regular “Badge Nights”, at which a member’s membership number is drawn to win a cash prize that can be as high as $60,000. Before each draw, we have agreed that if one of us is lucky enough to win, the prize will be shared equally among all six of us.

My question is whether distributing $6000 to each of the other members would be considered “gifting” by Centrelink, potentially leaving the winner with an additional $20,000 counted as part of their assessable assets for the next five years.

The bigger decision is whether you really need a $3 million home as you approach retirement.

That’s a fascinating question. If you won $60,000 and gave $6000 to each of the other five members, you would be distributing $30,000. Centrelink allows pensioners to give away $10,000 in a financial year, subject to a maximum of $30,000 over five financial years, without affecting their pension.

Assuming you had made no other gifts, the remaining funds would normally continue to be counted as an asset for five years and would also be subject to deeming under the income test.

However, there is another possibility. If you have a genuine agreement in place before the draw that any winnings will be shared, the payments may not be gifts at all, but distributions of money to which the other members are entitled.

I would suggest getting Centrelink’s view on the arrangement before the next draw. It could make a significant difference.

My partner and I are both 62. There is $255,000 left on the mortgage for our family home, which is worth about $3 million. The variable interest rate on our mortgage is currently 6.8 per cent. I earn $115,000 a year and my partner earns $85,000 a year. I have $530,000 in super and my partner has $400,000. Currently, neither of us is salary sacrificing. I am happy to work until retirement age, but my partner would like to start reducing his working days over the next few years. We keep procrastinating over whether we should sell the family home and buy something cheaper. If we decide to keep the family home, should we draw down on our super to repay the mortgage?

You are in a strong financial position, with a home worth about $3 million, combined superannuation of $930,000 and a relatively modest mortgage of $255,000. My first suggestion would be to take full advantage of the tax benefits available through superannuation while you are both working.

Assuming your salaries are exclusive of superannuation, your employer’s compulsory 12 per cent contribution would be $13,800 a year, while your partner’s would be $10,200. With the concessional contributions cap now $32,500 each, you could salary sacrifice an additional $18,700 a year and your partner $22,300.

That’s an extra $41,000 a year going into superannuation between you, taxed at just 15 per cent instead of your marginal tax rates. These are full-year figures, so if you start salary sacrificing part way through the financial year, you will need to check how much your employers have already contributed and how much room remains under your individual caps.

Your partner may also be eligible to use unused concessional contribution caps carried forward from previous years, given his superannuation balance is below $500,000. This could provide an opportunity to contribute even more at concessional tax rates, provided he has sufficient taxable income to make it worthwhile.

As for the mortgage, at 6.8 per cent it is costing you about $17,340 a year in interest if the full $255,000 remains outstanding. Paying it off would give you a guaranteed, tax-free saving at that rate, which is certainly attractive.

However, I would be reluctant to start withdrawing large amounts from superannuation while you are still working and building your retirement savings. Although you are both over 60, unrestricted access to super generally requires retirement or ceasing an employment arrangement after turning 60, unless you have already met another condition of release.

Your partner could also investigate a transition-to-retirement pension, which may allow him to reduce his working hours while supplementing his income from super.

If you maximised your superannuation contributions over the next three years, you would be adding an extra $55,250 a year to super. That would amount to $165,750 in additional contributions before investment earnings.

Assuming a return of around 7 per cent a year, this would give your retirement savings a substantial boost. Combined with your existing superannuation balances, it should put you in a strong position to retire debt-free.

The bigger decision is whether you really need a $3 million home as you approach retirement. Selling and buying something more modest could eliminate the mortgage altogether and release substantial capital to fund a very comfortable retirement.

But there is no need to rush that decision. My preference would be to maximise your tax-effective super contributions while you are both working, review your mortgage repayments and then consider downsizing when you have a clearer idea of your retirement plans.

At your ages, the aim should be to enter retirement with as little debt as possible, adequate accessible savings and the freedom to enjoy the years ahead.

My daughter and her partner took out a $265,000 mortgage with Suncorp in 2009 to buy a three-bedroom house in Brisbane. It was a 30-year loan, with the interest rate fixed for three years at a time. They currently pay $375 a week and still owe $160,000. They have always tried to make extra repayments when possible, but the bank seems to discourage this. Is there a better way for them to pay off their mortgage faster?

Based on what you have told me, they should have well over 20 per cent equity in their home, which means they should be able to refinance without paying lenders mortgage insurance when their current fixed-rate term expires.

I suggest they talk to a mortgage broker, as lending policies and interest rates vary between banks. A good broker should be able to find a competitive loan that suits their circumstances and allows them to make extra repayments without penalty.

They could also consider a split loan, with part fixed and part variable, giving them some interest rate certainty while retaining the flexibility to make additional repayments on the variable portion.

Noel Whittaker is the author of Retirement Made Simple and other books on personal finance. Email: noel@noelwhittaker.com.au.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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Noel Whittaker, AM, is the author of Making Money Made Simple and numerous other books on personal finance.Connect via X or email.

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