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

Example

Description

1

One payment received after 10 years

Customer sells a property and will receive one payment of $50 000 ten years after the sale. The upper deemed interest rate at the time of the sale is 6%.

Using the formula

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

Determine the discount factor:

1 - (10 x 0.06) + {10 x 0.06 x (10 - 1) x 0.06/2}

= 1 - (10 x 0.06) + (10 x 0.06 x 9 x 0.03)

= 1 - 0.6 + 0.162

= 0.562 (discount factor)

The estimated value is $50 000 x 0.562 = $28 100.

This is compared to the current market value to determine if deprivation has occurred.

2

Four equal payments received over 10 years

Customer sells a property and will receive $50 000 in four equal payments over 10 years for the sale of property. The upper deeming rate at the time of the sale is 6%.

Using the formula

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

Determine the discount factor:

1 - (10 x 0.06/2) + {10 x 0.06 x (10 - 1) x 0.06/4}

1 - (10 x 0.03) + (10 x 0.06 x 9 x 0.015)

= 1 - 0.3 + 0.081

= 0.781 (discount factor)

The estimated value is $50 000 x 0.781 = $39 050.