The Gift and Borrow Back Strategy and Tax The gift and borrow back strategy is often used as an asset protection strategy. I have written about this here: Legal Tip 115: The Gift and Borrow Back Strategy, Part 1 There are generally no taxes on gifts. See my thread on this Tax Tip 57: Gift Tax But there are tax issues on any interest on the loans coming back. Where interest is charged by a lender this will be income to that lender. Example Mum lends Son $100,000 at 10% pa. Mum will earn $1,000 per year in interest and she will pay tax on this as it is income. This is pretty straight forward. But there are potential issues for the borrower to claim a tax deduction on the interest where the origin of the money borrowed is the borrower. Example continued The son would pay mum $1,000 in interest, this would be deductible to the son, under s8-1 ITAA97, if the son has borrowed for the purposes of investing. But the ATO has powers to deny the claiming of a deduction where it is a scheme with the dominant purpose of a tax benefit (Part IVA ITAA1936). So the ATO may deny the deduction of interest to the son. I believe the ATO would likely deny the interest claimed by the borrower in situations like this, especially in the early years after a gift is made. This would probably be the same whether the gift giver gave the money to a parent, a spouse or a discretionary trust. As time passes there would be less likelihood of this occurring, assuming that a property arms length loan agreement is entered into. Therefore, if you wish to borrow back the money you have gifted someone and if you wish to claim the interest on this loan you should seek your own private binding ruling before doing so. Where the loan is interest free there should be no tax issues like this. Incidentally, an interest free loan can still be a legally valid loan and legally binding.