Sale of real estate or business by instalment or deferred payment 108-04070060

Customer advises that they have sold real estate or a business and that the purchase payments are deferred or made via instalments.

Is the documentation of the sale available now?

• Yes,
• and it was a property that is the customer's principal home, see Sale of principal home
• and it was not the customer's principal home, scan the documents for processing and refer to Complex Assessment Officer (CAO). Go to Step 2
• No,
• Request a copy of the sale agreement and loan agreement if a loan agreement was made
• Procedure ends until forms are returned and scanned

For Complex Assessment Officers (CAOs) only.

In most cases, customers will have separate sale and loan agreements.

If separate agreements do not exist, use the following as a guide:

• If the contract uses terms that suggest the existence of a loan, for example reference to the repayment of money, this is considered a loan agreement
• If a mortgage agreement exists which is expressed to be security for a loan, this is considered a loan agreement
• If there is no separate loan agreement and none of the above applies, the supplied document is considered a sale agreement

Is there a loan agreement or only a sale agreement?

• If loan agreement, go to Step 3
• If sale agreement only, go to Step 4

For Complex Assessment Officers (CAOs) only.

Money loaned by a customer is an assessable asset. The value is the amount owed to the customer but does not include any interest payable on the loan. Loans are subject to deeming provisions.

Code the loan details on the customer's Direct Investment (SVDI) screen.

See Step 3 in the Determining deprivation and setting a review table.

For Complex Assessment Officers (CAOs) only.

Does the sale agreement state that interest is payable on the outstanding balance?

• Yes,
• This interest is assessed as income
• Code income on the customer's Other Income (OIN) screen
• Code the outstanding balance on the Other Assets (OAS) screen
• See Step 3 in the determining deprivation and setting a review table.
• No,
• Code the outstanding balance on the Other Assets (OAS) screen
• It is necessary to determine whether deprivation of assets has occurred
• Go to Step 5.

For Complex Assessment Officers (CAOs) only.

In some cases, deprivation can be determined not to have occurred based on the sale agreement representing a reasonable offer based on the situation.

To determine whether the sale agreement represents fair market value, consider factors such as:

• How were the terms of the agreement determined, such as sale price and the length of the time for the repayments
• The length of time on the market
• Whether it was the only offer received
• The customer’s financial situation
• Whether the sale is an arm’s length transaction (not to family)

The CAO will need to discuss with the customer to identify the circumstances to determine if the agreement represents fair market value.

• If deprivation is determined to not have occurred:
• No further investigation is required
• Go to Step 7 to set a review for updates to the customer’s assets following expected payment(s)
• If it’s unclear whether deprivation has occurred:
• Additional steps are required to determine this
• Go to Step 6

Where it is unclear that the sale agreement represents a reasonable offer, the payments paid and/or the payments expected to be paid under the sale agreement will be multiplied by a discount factor to determine if a valuation is required. The result is compared to the current market value to determine if deprivation has occurred.

The discount factor will depend on:

• the upper deeming rate at the date of the agreement
• the term, in years, for the repayment
• whether the purchase price is paid in regular instalments or as a single payment

Is the outstanding balance to be paid in a single payment or equal instalments?

• If single payment, go to Step 7
• If equal instalments, go to Step 8

For Complex Assessment Officers (CAOs) only.

Calculate discount factor

1 - (N x R) + {N x R x (N - 1) x R/2}

N = term for repayment in years

R = upper deeming rate at the date of agreement, for example 6% is equal to 0.06 at the date of the agreement.

Multiply the amount to be received by the result of the above calculation, that is the discount factor. This gives the estimated current value.

See Step 1 in Table 2.

For Complex Assessment Officers (CAOs) only.

Calculate discount factor

1 - (N x R/2) + {N x R x (N - 1) x R/4}

N = term for repayment in years

R = upper deeming rate at the date of agreement, for example 6% is equal to 0.06 at the date of the agreement.

Multiply the total amount to be received by the result of the above calculation that is the discount factor. This gives the estimated current value.

See Step 1 in Table 2.

For Complex Assessment Officers (CAOs) only.

Does the estimated value appear to be less than the current market value?

• Yes, go to Step 2
• No, record details on a DOC. Go to Step 3

If the property or business appears to have been sold under its market value, an actuarial valuation is required to determine if deprivation applies and, if so, what amount.

Before an actuarial valuation is obtained, the actual value will need to be determined:

• For a property, establish the actual value by requesting a valuation of the property, unless recently done
• For a business, the actual value will be taken from the current balance sheet, with any adjustments to assets for market value

Once the actual value is determined, request an actuarial valuation to obtain the present value.

When the actuarial valuation is returned, determine if deprivation has occurred. The deprivation amount is the difference between the actuarial valuation and the actual sale amount.

• Record deprivation details, if applicable
• Record the details on a DOC
• Go to Step 3

If it is necessary to update the customer's assets to reflect payments at a future date, a review is required to adjust the customer's asset levels on receipt of future payments.

In Customer First, create a manual review on the Review Registration (RVR) screen and complete the fields as follows:

• Service Reason: customer's payment type
• Review Reason: PRO (Property Settlement Interest)
• Due Date: date of expected change in assets, for example the customer may receive the balance outstanding from sale in 12 months or some other timeframe
• Source: INT
• Date of Receipt: today's date
• Notes: 'Adjust the customer's asset levels on receipt of future payments, see OB 108-04070060.'
• Keywords: SALPAYMT
• Workgroup: leave blank
• Position: leave blank
• Transfer to Region: leave blank

The review will mature on the Due Date coded in the RVR activity. Workload Management will allocate the review for manual action.

The date for the review will depend on the circumstances of the case, for example, the customer may receive the balance outstanding in 12 months, 2 years or some other time frame.

Note: these payments are not income for Social Security purposes.

Procedure ends here.