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 Officer (CAO) use.

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 Officer (CAO) use.

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 Table 2 > Step 3.

For Complex Assessment Officer (CAO) use.

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 Table 2 > Step 3
• 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 Officer (CAO) use.

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 Officer (CAO) use.

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 Table 2 > Step 1.

For Complex Assessment Officer (CAO) use.

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 Table 2 > Step 1.