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Sale Leaseback Arrangements
Last amended: 25 July 2006
Sale leaseback residents
A person is a sale leaseback resident if:More ?
- the person's principal home is subject to a sale leaseback agreement, and
- the person is party to that sale leaseback agreement.
Sale leaseback agreement
Under a sale leaseback agreement, the buyer pays the pensioner an Initial Payment Amount (IPA) with the balance or Deferred Payment Amount (DPA) payable as a lump sum, on vacation of the property, or death of the pensioner (i.e. to the estate), at the end of the fixed period.
Note: The payment of the DPA may also be made by way of periodic instalments.
Sale leaseback contract
The sale leaseback contract will generally involve the following:
- a mutually agreed, fixed sale price,
- a down payment, generally between 25% and 50% of the agreed price,
- the balance owing paid either as a regular payment to the person while they continue to reside in the property or as a lump sum amount paid on vacating the property,
- the title deed can remain in the person's name or be transferred to the buyer's name depending on the terms of the agreement,
- an agreement granting occupancy for life or an agreed period, and
- the amount the person is required to pay rent or maintenance, if any, whilst he or she is occupying the sale leaseback home.
Assessment of initial payment amount
The treatment of the IPA is dependent on what the pensioner does with the money. The IPA itself is not regarded as an asset. However, the proceeds of the IPA are assessable (e.g. IPA proceeds may have been invested or gifted, etc).
Assessment of the deferred payment amount
The following table demonstrates how a deferred payment amount (DPA) should be assessed.
Then the DPA is...
the DPA is payable as a lump sum on:
treated as an entry contribution.
the DPA is payable in periodic instalmentsMore ?
treated as an entry contribution.
Note: The DPA is not reduced by the payment of instalments.
the person has undervalued their home under the sale leaseback agreement
assessed as the value of the property minus the IPA.
the person has entered an agreement for life and the terms of that agreement are such that either
assessed according to the deprivation formula for granny flats to determine the right to accommodation.More ?
Note 1: The value of the right to accommodation plus the IPA calculated would be subtracted from the actual value of the property to determine the DPA.
Note 2: Under these circumstances, there is no need to consider whether deprivation has occurred.
Ongoing fees are not considered to be part of a periodic instalment of the deferred payment amount.
Relevance of a deferred payment amount
The amount of the DPA for a sale leaseback residence is considered to be the entry contribution amount for assessment according to the special residence assessment rules.More ?
The Commission has the discretion to determine that component of the deposit which will be the IPA and that component of the payment which will be the DPA, if for any reason it considers it should be another amount.More ?
Example of a calculation of a deferred payment amount
A pensioner's home is worth $100,000.
He enters into a sale leaseback contract which provides for the:
- initial payment amount of $25,000,
- balance or DPA payable in instalments, covering maintenance and rent, of $5,000 for the following five years (total $25,000), and
- remainder upon vacation or death.
In this example, the pensioner's entry contribution (i.e. DPA) is:
$100,000 (agreed sale price) - $25,000 (IPA) = $75,000 (DPA)
Note: The periodic payments of $5,000 covering maintenance and rent are disregarded.
Provisions Relating to Special Residences and Special Residents
Special Residence – Basic Assessment Rules
According to subsection 5MB(2) of the VEA an agreement is a sale leaseback agreement, in relation to a person, if:
- under the agreement the person agrees to sell his or her principal home; and
- the residence that is the person's principal home is a private residence; and
- under the agreement the person retains a right to accommodation in the residence; and
- under the agreement the buyer is to pay an amount when the person vacates the residence or when the person dies.
An asset means any property, including property outside Australia.
An entry contribution is the amount paid or agreed to be paid by a person for the right to live in a:
- retirement village; or
- granny flat.
If a person lives in a home subject to a sale leaseback agreement, the entry contribution is the balance of the amount still to be paid by a buyer, at the date of a sale leaseback agreement.
A granny flat interest exists if a person has established a right to accommodation for life, or a life interest in another person's private home.
Granny flat interests are established by the following methods:
- transferring title of the pensioner's principal home to a relative and retaining a right of occupancy for life;
- providing funds for the construction of a granny flat in which the pensioner has a right to reside for life on a relative's property;
- providing some or all of the purchase price of a property which will usually be registered in a relative's name but in which the pensioner has a right to reside for life; or
- the terms of an estate.
Refer to Section 5MA(2) of the VEA for the full definition.
According to subsection 5MC(2) of the VEA a special residence is:
- a retirement village; or
- a granny flat; or
- a sale leaseback home.