4.6.4.40 Assessing sale leaseback residences
Summary
This topic discusses:
- the definition of a sale leaseback residence
- the definition of an initial payment and a deferred payment, and
- the procedures for using a different initial and deferred payment amount to those calculated.
Definition of a sale leaseback residence
Sale leaseback residences (1.1.S.25) are assessed using the special residence provisions. A home is a sale leaseback residence IF it is subject to a sale leaseback agreement. The deferred payment for a person living in a sale leaseback residence is assessed as the person's EC (1.1.E.130).
Comparison with a home equity conversion loan agreement
A sale leaseback agreement is NOT the same as a home equity conversion loan agreement which involves borrowing money against equity in the principal home.
Act reference: SSAct section 11A(1) Principal home
Initial payment & deferred payment definitions
For assessment purposes the amounts to be paid to a person under a sale leaseback agreement are divided into 2 categories as described in the following table:
| Payment category | Description |
|---|---|
| Initial payment amount |
Includes ALL payments related to establishing the agreement and the initial deposit. It includes the holding deposit and an amount paid on transfer of legal title. Explanation: The initial payment amount is not restricted to just the first payment made to the person. |
| Deferred payment amount | The total amount to be paid by the buyer MINUS the initial payment amount. It includes a stream of payments. |
Act reference: SSAct section 12B(4) The initial payment amount …, section 12B(6) The deferred payment amount …
Initial & deferred payments another amount
Under the SSAct, the Secretary MAY determine that the initial and deferred payments should be another amount.
Example: If the principal home is sold to family or friends OR if it appears that the home has been undervalued to reduce the total amount to be paid by the buyer, THEN the Secretary MAY consider that the deferred payment should be another amount.
The following table shows the procedure a delegate should follow if the initial and deferred payments are to be different amounts.
| Step | Action |
|---|---|
| 1 | If the property was not assessed for stamp duty purposes, obtain a valuation from a professionally qualified valuer. |
| 2 | Use the home's valuation to recalculate the initial and deferred payments, using the ratios in the sale leaseback agreement. |
| 3 | Use the revised deferred payment as the person's EC. |
| 4 | Apply deprivation to the difference between the actual and revised initial payment amounts. |
Example: A person sold their principal home for $100,000, where the:
- initial payment was $60,000, and
- deferred payment was $40,000.
The actual value of the home is $200,000. Applying the same ratios, the initial payment should have been $120,000 and the deferred payment amount should have been $80,000. The EC is the deferred payment amount of $80,000. Apply deprivation provisions to $60,000 ($120,000 MINUS $60,000).