Assets Value of Property and Real Estate

The value of a person's interest in any property or real estate is assessable unless it is an interest in their principal home.    

Real estate valuations

Real estate is valued using the person's estimate of the market value, unless:

• the person's pension is assessed under the assets test,
• the pension is assessed under the income test and the total value of the person's assets falls within $10,000 of the assets value limit, or
• there is evidence that the person is intentionally underestimating the value of the real estate and a more realistic value could affect payment.

Note: If the person's estimate of the market value is not used for the above reasons, DVA engages a qualified valuation service provider to provide an official property valuation. This valuation is obtained at no cost to the person.

Assessing a leasehold

If a person holds a lease over a property, the unexpired period of the leasehold may have a market value. A leasehold with a market value is an assessable asset. If it appears that pension payability or the rate of pension may be affected by the value of the leasehold, DVA can obtain a valuation from a valuation service provider.

Assessing timeshare arrangements

Where a person owns a timeshare in property (for example in holiday apartments), the current market value of the timeshare is assessable. This is regardless of whether the person owns a fractional share of the property, or has purchased the timeshare by entering into a contract which provides them with the right to use the property on a regular basis. A delegate must be reasonably satisfied as to the current market value of the timeshare. Therefore, if the person has purchased the timeshare within the last  12 months, then the amount that the person paid for the timeshare may be accepted as the current market value. If the timeshare was purchased more than 12 months ago, then the client may need to provide details of the current sale price. This would then be the amount that is held in the pension assessment.

A valuation from a valuation service provider of the timeshare arrangement may be required, if:

• there are doubts about the current market value, or
• the person's pension is assessed under the assets test, or
• the pension is assessed under the income test and the total value of the person's assets falls within $10,000 of the assets value limit, or
• there is evidence that the person may be intentionally underestimating the value of the real estate and a more realistic value could affect payment.

Sale of property or real estate

When a person enters into a valid and legally binding contract for the sale of property or real estate, the property or real estate is no longer an assessable asset. Ownership is transferred to the purchaser as soon as:

• the legal owner enters into a legally binding and unconditional agreement for the sale of the real estate or property, or
• all conditions are met, if the agreement is subject to preconditions.

Note: The property or real estate remains a person's asset until the contract is legally binding or all preconditions have been met.

Legal proof of the transfer of ownership

The legal proof required to confirm the transfer of ownership is:

• a signed and dated contract of sale, and
• any other relevant documents, such as receipts or bank statements relating to the deposit or purchase price and solicitor's statements.

Property sales between family members

Sales between family members need to be examined in more detail to ensure that ownership of the property has been transferred to the purchaser. If the contract is not legally binding, the property or real estate is the person's asset. If the sale is for an amount less than market value, the deprivation provisions may apply.    

Proceeds of sale of property

The value of any cash proceeds received by a person from the sale of a property or real estate is assessed as a cash asset. The value of any debt owing to the person is assessable. If the sale price of the property or real estate is below market value, deprivation provisions may apply.    

Water rights

Water rights are a legal and in most cases a saleable commodity.  They are not attached to a specific land title, but rather belong to the owner of the title.

When a property with water rights is on a single title, the value of the water right is added to the value of the property to give a total value as an irrigated block.  If the property is made up of multiple titles, the value of the water right is apportioned across all titles.  This is done because if the water right is only added to one of the titles, all other titles are devalued as they can only be assessed as "dry land".

Historically, most states and territories bundled land property titles and associated water entitlements together. Under the National Water Initiative, water entitlements can be traded independently of land. This separation, known as unbundling, has been completed in many jurisdictions. This means that water rights are unbundled from each other, as well as being unbundled from land. Where a water right is sold separately to land title, it represents the sale of an asset, with the assessment being determined on what has happened to the proceeds of the sale.

Assessing entry contributions to retirement villages and for a granny flat interest

If a special resident's entry contribution to a retirement village, or in acquiring a granny flat interest, exceeds the extra allowable amount, they are regarded as a homeowner. The entry contribution amount will be disregarded under the assets test, they will be subject to the lower assets value limit and will be ineligible for rent assistance.

If a special resident's entry contribution to a retirement village or in acquiring a granny flat interest is less than or equal to the extra allowable amount, they are assessed as a non-homeowner. The entry contribution will be assessable under the asset test, they will be subject to the higher assets value limit, and they may receive rent assistance, if otherwise eligible.     

Refund of entry contributions on leaving a retirement village

When a person decides to leave a retirement village, they may be entitled to a full or partial refund of their entry contribution.

The value of the refund owed to the person is:

• assessed under the special residence basic assessment rules while the person continues to live in the retirement village    
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  9.2.5/Special Residence – Basic Assessment Rules

   

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• an assessable asset after the person leaves the retirement village and has received the refund.

Delayed refund of entry contribution on leaving retirement village

Refund of the entry contribution may be delayed when a person leaves a retirement village. The delay may typically extend until the vacated unit is sold, or for the time period specified in the Residential Agreement (commonly  12 months), whichever is the shorter period. However, there are some instances where a Residential Agreement stipulates that the refund will be delayed, sometimes for a matter of years.

Where the entry contribution is not refunded for a period of time following departure from the retirement village, for the resident who is a 'homeowner' according to the special residence assessment rules, the entry contribution amount continues to be exempt until such time as it is received. Subject to the 2 year exemption limit when a person enters care, the un-refunded entry contribution amount continues to represent the person's right to live in the retirement village, and so retains the exempt status of a right or interest in a principal home providing reasonable security of tenure.

If there is a long delay in the person actually receiving the refund, then the amount may be regarded as either a loan or a sale agreement.

Example: On entering the retirement village and paying an entry contribution, a person signs a contract stating that they will not receive the refund due to them immediately. Instead, under the terms of the contract, the refund must be invested in a trust account managed by the retirement village for a period of 8 years. In this case, the outstanding amount will be regar — ded as either a loan, or a sale agreement, depending on the terms specified in the contract.     

Assessment  of entry contribution refund where one member remains a special resident

A refund of entry contribution may still arise where one member of a couple remains in the retirement village. This may occur where the residential contract provides for a full or partial refund where one person leaves. An example is where one person leaves to enter aged care.

The refunded amount may not necessarily be half of the amount originally held as the couple's entry contribution. This may occur, for example, where the individual residence contribution of each member of the couple on entering the retirement village was different. A reassessment of the entry contribution amount for the person remaining in the retirement village may be required.    

Assessment of insurance and compensation payments for loss or damage to property other than the principal home

Compensation and insurance payments received by a person for loss of, or damage to buildings, plant or personal effects are a disregarded asset for 12 months from the date that the payment was received.

Insurance or compensation payments can include:

• funds received due to a loss or damage to a building, plant or personal effects,
• payments that have been applied to build another building to replace the building that was lost, or
• payments that have been applied to rebuild, repair or renovate the building or plant if the building was damaged.