Selling property on vendor finance: how the Age Pension treats a sale paid in instalments

Selling a farm, an investment unit or the family home "on terms" is more common than people think, especially when the buyer is a son or daughter who can't get a full bank loan. The buyer pays a deposit, then the rest over a few years. For an Age Pension recipient, the important point is that the property leaves your assets but the money still owed to you comes in. How that debt is treated, and whether you charge interest, can change your pension.

All rules below come from the Department of Social Services (DSS) Social Security Guide, version 1.344 (released 26 October 2026), with figures current for FY2026-27 as at 30 October 2026.

When does the property stop counting?

Centrelink stops counting the property as your asset once you have a "valid and legally binding contract" for its sale. That usually means contracts have been exchanged, any cooling-off period has ended and any conditions have been met [1].

From then on, the Guide says you "may now have assessable assets as follows": the deposit the buyer has paid you, and "a debt owed by the purchaser to the vendor to the value of the unpaid interest in the property" [1]. Your assets don't shrink because you sold on terms. A $400,000 property becomes a deposit plus a debt that, together, start at about the same value.

Your interest ends only when the full price is paid and the rest of the contract is complete, such as title passing to the buyer [1]. For contracts paid by instalments, the Guide adds that the terms "may influence whether the property is an assessable asset" and each case is decided "on its merits" [1].

Is it a loan or a sale agreement?

For the income test, the Guide splits instalment sales into two kinds [2]:

• If the sale creates a loan, the loan "will be subject to deeming". Centrelink assumes the unpaid balance earns the deeming rate, whatever interest the buyer actually pays [2][3].
• If it is a sale agreement that charges interest on the unpaid balance, "the interest payable IS treated as income" [2].

Either way, "the repayment of the purchase price of the property is not income" [2]. The instalments that pay down the price don't count as income. Only interest, actual or deemed, does.

For a loan, the Guide says there must be an actual lending of money or an asset and a clear intention to repay [4]. Whether your contract is a loan or a sale agreement is Centrelink's decision, based on what the contract says. Have your solicitor's documents ready to show them.

From 20 September 2026, the deeming rates are 1.75% on financial assets up to the threshold and 3.75% above it [6][7]. The thresholds from 1 July 2026 are $66,800 for a single pensioner, $110,600 combined for a pensioner couple and $55,300 for each member of a non-pensioner couple [6]. Services Australia lists loans among the financial assets it deems [8].

A loan is assessed at the amount owed, not including interest, "whether or not the loan is performing" [3]. If a buyer stops paying, the full balance can still be assessed. Special hardship and deeming-exemption rules for failed loans may help, but they have their own requirements [3].

Can interest-free terms trigger deprivation?

Many family sales are interest-free. Here the Guide gets stricter. A dollar paid to you in five years is worth less than a dollar today, so Centrelink discounts future payments to their present value. "If the present value of the payment is less than the value of the property sold the agreement may involve deprivation of assets" [2].

Deprivation is Centrelink's name for giving value away. You can give away $10,000 a financial year, and no more than $30,000 over five financial years, without it counting [9]. Anything above those limits can be counted as a "deprived asset" for five years from the date you gave it away, even though you no longer have it [9]. Centrelink treats family deals carefully. Selling below market value can count as deprivation, and the Guide says family contracts are "examined in more detail" [1][10].

To decide whether it needs a formal actuarial valuation, Centrelink can estimate the value of interest-free payments with a formula that uses the upper deeming rate on the day you sign [2]. A worked example shows how big the gap can be.

Worked example

Illustrative only, not personal advice.

Helen, 71, is single and on a part Age Pension. She sells a rental unit worth $400,000 to her son. He pays a $100,000 deposit and the remaining $300,000 in equal annual instalments over five years, with no interest.

Using the Guide's formula for equal instalments, with the upper deeming rate of 3.75% at the date of the agreement [2]:

• Discount factor = 1 − (5 × 0.0375 ÷ 2) + (5 × 0.0375 × 4 × 0.0375 ÷ 4) = 0.9133
• Estimated present value of the $300,000 = $300,000 × 0.9133 = about $273,984
• Gap between the face value and the estimate = about $26,016

So Helen gets $100,000 now and payments worth about $273,984 in today's dollars for a property worth $400,000. A gap like that is the kind that can lead Centrelink to get a formal valuation and look at deprivation. Any amount found to be given away above the $10,000 annual free area could then count against Helen for five years [2][9]. The formula is only an estimate. The final figure is Centrelink's, and it may use an actuarial valuation.

If the contract charged a commercial interest rate, the present-value gap would largely disappear. The trade-off is that the interest would count as income, or the balance would be deemed if Centrelink treats it as a loan [2].

What if you sell your own home on terms?

If you sell your principal home by instalments and keep living in it until settlement, usually when the last instalment is paid, the home keeps its exemption. In this case the Guide says the sale proceeds rules "do not apply" because you still have security of tenure [5]. The Guide also says your retained interest in your principal home may be exempt where your right to stay until the debt is paid gives you reasonable security of tenure [1].

Once you move out, the principal home sale proceeds exemption may apply to money you intend to spend on a new home. For homes sold on or after 1 January 2023, the exemption lasts up to 24 months, extendable to 36 months if you meet strict criteria. Proceeds held in a financial investment are still deemed, at the lower rate only, during the exemption [5].

What is the tax timing trap?

Centrelink and the ATO measure different things. For capital gains tax, "if there is a contract of sale, the CGT event happens when you enter into the contract", not at settlement [11]. On a terms sale, the capital gain is made in the financial year you sign, even if most of the money arrives years later. If the property is not CGT-exempt, plan how the tax bill will be paid. A registered tax agent can tell you what that means for your return.

What this means for you

If you are thinking about selling on terms, these questions may help:

1. Will the contract be legally binding, with a clear payment schedule, on paper Centrelink can read?
2. Is interest charged? If not, is the gap between the price and the present value of the payments likely to exceed the gifting free areas?
3. Are you selling at market value, backed by a valuation?
4. If it's your home, will you stay there until the final payment, or move out sooner?
5. Can you meet the capital gains tax in the year of the contract?
6. What happens if the buyer stops paying, or if you die before the balance is paid?

Related reading: gifting rules and deprivation, loans to family members and the Age Pension, selling the house to your kids for a family price, deeming explained and home sale proceeds and the Age Pension.

Where to go next

• Tell Services Australia about the contract and each change within the reporting period, and keep copies of the contract and payment records.
• Get the contract drawn up by a solicitor. Centrelink decides loan versus sale agreement from its terms.
• Talk to a licensed financial adviser before you sign, and to a registered tax agent about the CGT year.

Sources

1. DSS Social Security Guide 4.6.5.30 — Assessing property, real estate & unit trusts
2. DSS Social Security Guide 4.3.8.20 — Income from sale of property: payments deferred or by instalments
3. DSS Social Security Guide 4.6.5.60 — Assessing loans & guarantor arrangements
4. DSS Social Security Guide 1.1.L.65 — Loan (assets test)
5. DSS Social Security Guide 4.6.3.90 — Exempting the principal home: sale proceeds (homes sold on or after 1 January 2023)
6. DSS Social Security Guide 4.4.1.10 — Overview of deeming (rates and thresholds table)
7. Australian Government Actuary — Deeming rate recommendation, September 2026
8. Services Australia — Deeming (Age Pension)
9. DSS Social Security Guide 4.1.10 — The rolling 5 financial year deprivation provisions
10. DSS Social Security Guide 4.1.1 — General provisions of deprivation
11. ATO — CGT events