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Gift or loan?

Discussion in 'Accounting & Tax' started by dan2101, 10th Jan, 2016.

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  1. dan2101

    dan2101 Well-Known Member

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    Hey all,

    Just wondering if I had a family member that had done particularly well out of the recent boom in Sydney and wanted to give me $300k how best I would go about this?

    1/ would it just be a gift and thank you very much scenario

    or

    2/ would i just say it was a temporary loan (that I may or may not ever pay back).



    Thanks!
     
  2. datto

    datto Well-Known Member

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    You got family members that dish out money like that?

    Adopt me! Adopt me!
     
  3. dan2101

    dan2101 Well-Known Member

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    It's a long story datto. Sort of a hypothetical but not. Just curious as to the implications.
     
  4. thatbum

    thatbum Well-Known Member

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    There's probably nearly countless implications both ways - it depends on what your goals are...?
     
  5. dan2101

    dan2101 Well-Known Member

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    The goal would be to simply get the 300k off the family member into my bam account without having to pay any tax and use it to pay down PPOR, buy further IP's, go on holidays or whatever.
     
  6. MikeLivingTheDream

    MikeLivingTheDream BCOM MCOM MTAX CPA CTA Registered Tax Agent

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    Terry will be best to answer as he is the lawyer.

    I would think it would be best to gift if the other party didnt ever want the money back and document it accordingly as a gift.

    Issue with a loan which is never paid back is that party might die, wife or children claim it was an interest free loan repayable on demand, and then ask for the money back and take legal action to do so.
     
  7. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Depends. If advising you then a gift. If advising the other party. Think about it jointly and consider some asset protection and tax strategies.

    I have written 2 threads on this in the legal forum (parents) and there was another recent thread.
     
  8. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    And either way document it properly.
     
  9. dan2101

    dan2101 Well-Known Member

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    I went through your tips Terry and read the one about adults helping out children. I didn't realise the index was there it's extremely informative thanks.

    In this case it would be a brother helping me out. Assuming it is a $300k gift and we document it is it left at that? Like the ATO aren't going to make me pay tax on it as being income tax or some other rort they usually apply? I thought I read somewhere there was a maximum 'giftable' amount?
     
  10. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    No tax on gifts, unless it is income disguised as a gift.

    Consider the issues which could arise on
    death of you or him
    bankruptcy of you or him
    family law dispute of you or him
    etc

    for example if you were to end up bankrupt the money would be lost, but if it was a loan from him he would be a creditor. If you gave a 2nd mortgage he would be a secured creditor. and take priority over everyone else except the first mortgage holder of that security.

    But this won't be good if he were to go bankrupt as your loan would be payable to his creditors.

    A possible way around this may be for him to gift to a discretionary trust which could then give you an interest free loan. But there are many other issues with this which need to be considered.

    Any gift is also subject to the clawback rules of the bankruptcy act and the conveyancing act and any loan is subject to the limitations act.

    The benefit of starting with a loan is that it can be forgiven, but a gift cannot be converted into a loan easily.
     
    Ian Macleod likes this.
  11. dan2101

    dan2101 Well-Known Member

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    Great thanks for the help Terry!