Assessment and sale of real estate and timeshare asset 108-04130010

The residence where a customer spends the greatest amount of time is their principal home. The principal home and the private land (curtilage) adjoining the home are usually not considered assets under the assets test. A separate procedure explains how to assess house and curtilage.

Customers who leave their principal home due to illness and have to enter care may have their home exempted from the assets test.

A customer may own or be paying off other real estate, including overseas real estate (that is, holiday home, house, unit, flat, vacant land or land not allowed as curtilage). To determine the assessable asset value, consider:

• the net market value of the property (and its contents)
• the customer's share of ownership in the property
• any outstanding loans secured against the property
• any other encumbrance the property may be subject to, such as life interests

When an asset is damaged, for example due to an emergency event such as flood, fire or cyclone its current market value is affected. If the customer advises the market value of the asset has reduced due to significant damage, see Maintaining the value of real estate assets on customer records. This current market value should be assessed irrespective of any insurance that may be payable.

The assessable market value of an asset is reduced by the amount of any outstanding charge or encumbrance over the asset. However, a charge or encumbrance cannot be deducted if:

• it is for the benefit of a person other than the customer or the customer's partner
• it is a collateral security
• the asset it is secured against is an exempt asset

If a charge or encumbrance is secured against:

• both an exempt asset and an assessable asset, the amount of the outstanding charge or encumbrance is shared between the assets in proportion to the asset values. To determine the amount of the loan to be deducted as a liability:
• (value of secured loan x value of assessable property)/value of all properties (assessable property + exempt property + any other properties covered by the secured loan).
  In most cases, the customer's estimated value of the exempt asset, for example, the principal home, is accepted. If it appears the value is completely unreasonable, normal valuation processes are followed
• more than one assessable asset, the amount of the outstanding charge or encumbrance is shared between the assets in proportion to the asset values. To determine the amount of the loan to be deducted as a liability against each assessable property:
• (value of secured loan X value of assessable property)/value of all properties (the total of all assessable properties covered by the secured loan)

Customers who own real estate as 'tenants in common', have their share assessed based on the agreed ownership percentage. For example, if a customer owns 40 per cent of the property, 40 per cent of the whole property value is used. This differs from customers who own real estate as 'joint tenants' with one or more people, in which case the property is assessed in equal proportions. Any applicable home and curtilage is exempt from the assets test in both these cases if the real estate is considered as the principal home.

A partially constructed home is assessed as an asset if:

Before 1 January 2023:

• the customer is building a new principal home from the proceeds of the sale of their former principal home and the allowable period of 12 months has elapsed, and an extended exemption period of up to an additional 12 months has not been granted, or
• the customer is building a new principal home because they demolished their former home and the temporary absence period of 12 months has elapsed, and an extended exemption period of up to an additional 12 months has not been granted, or
• the customer is building a home and neither the sale of home provisions nor the temporary absence provisions apply

From 1 January 2023:

• the customer is building a new principal home from the proceeds of the sale of their former family home and the allowable period of 24 months has elapsed, and an extended exemption period of up to an additional 12 months has not been granted, or
• the customer is building a new principal home because they demolished their former home and the temporary absence period of 12 months has elapsed, and an extended exemption period of up to an additional 12 months has not been granted, or
• the customer is building a home and neither the sale of home provisions nor the temporary absence provisions apply

If the partially constructed home is to be assessed as an asset, an estimate of the value of the property is needed from the customer. Issue a Real Estate Details (MOD R) form.

If the customer advises they have made progress payments, the following details are also needed:

• amount and frequency of progress payments
• the customer's revised estimate of the property value
• how long before the property will be fully constructed
• if the property will become the customer's principal home
• the source of the progress payments

The loan contract provides the information required and a schedule of payments. If there are any delays in the construction of the home the customer must provide the details and a revised schedule from their builder.

When the new construction is completed and the customer has a ‘certificate of occupancy’ for the new home, issue a new MOD R to get updated details and a new customer estimated value.

If the property will not become the customer's principal home and is currently coded as an asset, the property will need to updated on the Real Estate/Business Summary (REBS) screen from a Vacant (VAC) block to a property that includes a dwelling.

Information for assessing real estate is collected from the Real estate details (MOD R) form and supporting documents. These may include:

• evidence of any mortgage on the property
• building schedules/contracts (for homes under construction)
• latest council rates/valuation notice
• certificate of title or any other title document

Centrelink International Services (CIS) may accept alternative source documents for overseas real estate instead of a valuation (for example, Italian tax returns).

Real estate owned via shares in a private company is assessed via trust and company rules.

If the customer makes a capital gain when they sell their property, no income is assessed for income support payments. Capital gains may be assessed when a private trust or private company makes a capital profit. A capital gain in an unincorporated business, such as a partnership, is not usually assessed, unless it forms part of the normal activity of the business, for example, property development.

A homeowner (the seller) may enter into a call option agreement with a buyer for the sale of their principal residence. The agreement sets out the ultimate purchase price the buyer will pay, and is unique in that it has no end date, allowing it to continue long term.

There are 2 trigger events that activate the option agreement:

• death of the seller (or nominated resident for those couples where both are not on the title)
• desire of the seller to sell

The option agreement is not triggered when the seller:

• leaves the property
• rents the property

The seller receives an upfront option fee on execution of the agreement.

The seller also receives an ongoing option fee. This ongoing option fee is payable monthly by the buyer to the seller via a trust account for up to a maximum of 20 years. These payments reduce every 5 years; for example, a house with an initial value of $400,000 would receive around $9,000 per year for the first 5 years.

If a trigger event occurs within the first 3 years, the buyer has the option to request a full refund of all payments made without any interest added.

Assessment for customers (the seller):

• the amount received is not income
• they are assessed as homeowners and the house is their asset until they have sold their home
• there is no deprivation if they have entered into an arm's length commercial arrangement

This procedure does not apply to family assistance or Paid Parental Leave (PPL) as they are not asset tested. However, the impact on the customer's Adjusted Taxable Income (ATI) should be checked.