Advice for 75k from parents - gift or loan?

I have asked one mortgage broker my lending capacity and they have advised that best possible outcome is loan of $380k, based on my salary and current financial position. My parents are also in a position to loan / give me $75,000. Is it better to put the 75k as a loan at 5% for tax purposes, or is it better to record it as a gift? I have been reading a lot of Terry's posts about the best loan structure for first investment property (The ideal Loan Structure where the first property is an investment) but probably need to read up more to understand this in greater detail.

Also, is there a good accountant or mortgage broker with relevant tax knowledge that you can recommend in Melbourne?

 

I won't get into the tax stuff - not my domain but for a good accountant/broker - if you're happy to deal via phone/online then you've got the entire country to pick your service providers from.

Nice avatar!

Cheers

Jamie

 

You have awesome parents.

 

Ask your broker which lender he used for that servicing. I know he said best possible but if you share that information here I am sure other brokers could chime in. Your broker may not have the most generous lenders on there panel.

Secondly is there an issue with 380k, how much did you plan on spending? Without being an expert the issues I see is that if you "loan" from your parents for tax purposes then technically the lender should be advised of this and then the application would fall over anyway. Also if you lend on commercial terms you need to pay it back as per those terms, if the lenders are saying you can only afford 380k then maybe borrowing more is not such a great idea?

 

If they do officially loan you the money that will need to be declared on the loan application which could potentially reduce your borrowing capacity too.

 

If you gift funds, your borrowing power and purchase price may be restricted to an 85% LVR. This is to avoid showing genuine savings thats required by most lenders.

You can expand this out to 90% LVR and extend your purchase price with NAB & Suncorp.

 

Keep it hush hush. Your finances are private

 

I would say consider it as a loan. For 3 reasons:

1. asset protection on divorce and bankruptcy, and

2. taxation - this can be refinanced later if done properly and you parents paid back and the extra loan interest deductible.

3. Loans can easily be converted to gifts, or forgiven, but gifts can't be converted to loans.

But your parents should get advice from a lawyer, especially about the effects on any pension, and you should get separate advice, from a lawyer or tax agent.

See also
Legal Tip 12 Parents Helping Adult Children https://propertychat.com.au/community/threads/legal-tipe-12-parents-helping-adult-children.736/

Legal Tip 38 Spousal and Related Party Loans https://propertychat.com.au/community/threads/legal-tip-38-spousal-and-related-party-loans.1872/

Legal Tip 40: Forgiving Loans on death - A recent case https://propertychat.com.au/community/threads/legal-tip-40-forgiving-loans-on-death-a-recent-case.2128/

Legal Tip 74: Loans Death and Inheritance Legal Tip 74: Loans Death and Inheritance

Legal Tip 86: Loans and limitations of enforcement legal Tip 86: Loans and limitations of enforcement

Legal Tip 97: Spousal loans as an asset protection strategy Legal Tip 97: Spousal loans as an asset protection strategy

Legal Tip 100: Loans from an associated entity to a bankrupt can be income Legal Tip 100: Loans from an associated entity to a bankrupt can be income