Sale of a property
If I sell a rental property with the proceeds payable monthly over a number of years, what is the impact on the income test? I do not intend to buy another property.
Abe, I am fairly certain that Wondering is talking about selling an investment property, not a rental property.
Surely if he sold an investment property he would receive a lump sum, not monthly instalments
I'm with Ben, I think you should get off the medication ABE.
Ben and Jacka
where's your SOH
Not if he is vendor financing, that is quite common.
Qestion;if Wondering was vendor financng, as suggested by mogo, would not the residual vale of the debt be regarded as an asset or would the periodic payments be regarded as income?
It would be very unwise to receive money as a monthly repayment from the sale of an investment property.
While there are companies that do this; your property would still be an asset to the tune of the amount that has not yet been repaid. So no.
The risk is very high that the new owner may default and you would be up for huge legal fees to try and recoup your losses. Your legal contract would have to be airtight.
Also, given that you are talking about reducing your assets to receive the aged pension someone will probably have to sort out this transaction upon your passing away. Its not something either the person buying the home or your children would particularly like to deal with.
I agree Rosret. Pretty dangerous and would need all sorts of contracts. I get skittish whenever you need contracts. It can go pearshaped damn fast if the lawyers get the wording even a bit wrong.
I imagine a regular monthly payment would be classed as income and treated accordingly by both Centrelink and the ATO.
A good comment from Rosret, and wise advice too.
Eddy was the only response that came near addressing the question I asked. Thanks for all the other gratuitous advice about what I should have done.
The question was what impact would be on the income test.
Eddy is correct that the unpaid balance represents an asset. As such, arguably that asset is subject to the deeming rules. However, the asset is not under my control. The contract controls the asset. Applying deeming to the full outstanding balance seems to me to be unfair. (Whether or not the issue of fairness is relevant I don't know). But that seems to be one of the possibilities. An argument against this is that the property will not be transferred to the purchaser until all payments are made. Therefore it remains an investment property until transferred and so deeming doesn't apply. (I use the term rental property but if investment property is preferred that is fine.)
Another possibility is that the monthly amounts would be treated as income for the purposes of the income test, as suggested as a possibility by Eddy. This would be even more unfair than the first possibility, to the extent that part of the monthly amounts are returns of capital.
A third possibility is that deeming would be applied to the accumulating amounts of monthly payments alone. This seems to me the fairest option.
What is relevant, of course, is what position Centrelink would take.
Whoever said it was an attempt to reduce assets to qualify for the age pension just clearly missed the whole point of the question.
Returns of capital are deemed poorly by Centrelink after the Hockey budget changes.
For example an income stream can have 48% non concessional portion but it is deemed as only 10% now.
The portion of the income stream that has been fully taxed is classed as income by Centrelink as well even though in reality it is a return of capital.
Eddy was the only response that came near addressing the question I asked. Thanks for all the other gratuitous advice about what I should have done.
The question was what impact would be on the income test.
Eddy is correct that the unpaid balance represents an asset. As such, arguably that asset is subject to the deeming rules. However, the asset is not under my control. The contract controls the asset. Applying deeming to the full outstanding balance seems to me to be unfair. (Whether or not the issue of fairness is relevant I don't know). But that seems to be one of the possibilities. An argument against this is that the property will not be transferred to the purchaser until all payments are made. Therefore it remains an investment property until transferred and so deeming doesn't apply. (I use the term rental property but if investment property is preferred that is fine.)
Another possibility is that the monthly amounts would be treated as income for the purposes of the income test, as suggested as a possibility by Eddy. This would be even more unfair than the first possibility, to the extent that part of the monthly amounts are returns of capital.
A third possibility is that deeming would be applied to the accumulating amounts of monthly payments alone. This seems to me the fairest option.
What is relevant, of course, is what position Centrelink would take.
Whoever said it was an attempt to reduce assets to qualify for the age pension just clearly missed the whole point of the question.
Eddy was the only response that came near addressing the question I asked. Thanks for all the other gratuitous advice about what I should have done.
The question was what impact would be on the income test.
Eddy is correct that the unpaid balance represents an asset. As such, arguably that asset is subject to the deeming rules. However, the asset is not under my control. The contract controls the asset. Applying deeming to the full outstanding balance seems to me to be unfair. (Whether or not the issue of fairness is relevant I don't know). But that seems to be one of the possibilities. An argument against this is that the property will not be transferred to the purchaser until all payments are made. Therefore it remains an investment property until transferred and so deeming doesn't apply. (I use the term rental property but if investment property is preferred that is fine.)
Another possibility is that the monthly amounts would be treated as income for the purposes of the income test, as suggested as a possibility by Eddy. This would be even more unfair than the first possibility, to the extent that part of the monthly amounts are returns of capital.
A third possibility is that deeming would be applied to the accumulating amounts of monthly payments alone. This seems to me the fairest option.
What is relevant, of course, is what position Centrelink would take.
Whoever said it was an attempt to reduce assets to qualify for the age pension just clearly missed the whole point of the question.
Eddy was the only response that came near addressing the question I asked. Thanks for all the other gratuitous advice about what I should have done.
The question was what impact would be on the income test.
Eddy is correct that the unpaid balance represents an asset. As such, arguably that asset is subject to the deeming rules. However, the asset is not under my control. The contract controls the asset. Applying deeming to the full outstanding balance seems to me to be unfair. (Whether or not the issue of fairness is relevant I don't know). But that seems to be one of the possibilities. An argument against this is that the property will not be transferred to the purchaser until all payments are made. Therefore it remains an investment property until transferred and so deeming doesn't apply. (I use the term rental property but if investment property is preferred that is fine.)
Another possibility is that the monthly amounts would be treated as income for the purposes of the income test, as suggested as a possibility by Eddy. This would be even more unfair than the first possibility, to the extent that part of the monthly amounts are returns of capital.
A third possibility is that deeming would be applied to the accumulating amounts of monthly payments alone. This seems to me the fairest option.
What is relevant, of course, is what position Centrelink would take.
Whoever said it was an attempt to reduce assets to qualify for the age pension just clearly missed the whole point of the question.
Sorry if my response appears multiple times. I don't know how that happened.
In which country do you live? You are not allowed to sell rental properties, they belong to the owner. This has happened a few times in Oz, sold rentals while the owners were abroad, and those people are now languishing at her majesty's pleasure.