Sale Leaseback Arrangements

Last amended: 25 July 2006

Sale leaseback residents

A person is a sale leaseback resident if:    

• 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.

Ongoing fees

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.    

Commission discretion

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.    

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.