Loan agreements between family members

Hi all
Just a quick question, does the ATO accept loan agreements between family members if you do it yourself, and not through say a solicitor?
Thanks in advance
Will

 

If the agreement is effective it will be fine.

If you do it yourself it may not be effective.

 

There is a presumption that family members don't contract with each other, but this can be rebutted by a written agreement. If interest will be claimed certain terms must be met but a written agreement will be accepted at law as evidence

 

worth discussing with a lawyer as well the implications of a formal loan agreement between family members.

1. family member dies. is loan repayable immediately ? how will it be handled as part of the estate

2. what happens in the event of divorce of the family member ?

lots more than tax to consider

 

I have seen the ATO disregard loan agreements drafted by lawyers and accepted written evidence of a family agreement. The ATO typically look for more than just an agreement.

1. Is there a written contract
2.Was its settled as agreed
3. Has it been maintained / paid
4. Is there an accounting for the loan indebtedness
5. Has withholding tax been paid if relevant ?

Loans which arent maintained can be classified a sham, a gift or income to the reciepient if its not done well.

eg FCT v Rawson Finances - An obligation of repayment isnt evident by subsequent payment of the same amount let alone a different related party and a alternative obligation. The obligation of repaymnet is proven by terms of the contract.

eg Crowe-Maxwell v Frost deals with undocumented contracts for loans. The conduct of the parties asserts a contract. Must be unambiguous parties intended to contract m and all the essential elements of an express contract.

Recent decision in AAT concerning an experienced lawyer in Rares J v FCT. Tribunal wasnt satisfied and objective support from conduct or contract he had borrowed funds and repaid them as a contract. So the poor unqualified taxpayer may have difficulty proving a loan is a loan if the documents and conduct dont agree its a loan. The AAT specifically note the absence of evidence presented that assisted the decision of the tribunal.

 

Thanks all for the replies, much appreciated!