All Topics / Legal & Accounting / Gift or Loan from Parents

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  • Profile photo of hugoismydoghugoismydog
    Participant
    @hugoismydog
    Join Date: 2011
    Post Count: 17

    Hi all,

    We need advise. My parents would like to gift us a 6 digit sum from overseas to pay off our mortgage.
    I know that the ATO would be unto it if it comes from overseas in that amount.

    1. Would it be best to declare it as a gift or loan from parents to avoid tax?
    2. What is the max amount that will trigger ATO to see the amount as taxable?

    Please advise.

    Thank you.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    Think asset protection upon bankruptcy, death, incapacity and family law.

    A loan is usually better – doesn’t need to be at an interest ate.

    Neither gifts or loan proceeds are taxable.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://Terryw.com.au/

    Profile photo of hugoismydoghugoismydog
    Participant
    @hugoismydog
    Join Date: 2011
    Post Count: 17

    Hi Terry,

    Thanks for that. So any amount of gifts even over $1 million will not be taxable from overseas?
    Just to confirm again.

    Profile photo of tanner892tanner892
    Participant
    @tanner892
    Join Date: 2013
    Post Count: 25

    I don’t understand why you think this would be taxable?

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    If it is a gift then no. if it is income disguised as a gift then yes it would be taxable.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://Terryw.com.au/

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    Here is an article that i wrote

    Parents Helping Adult Children

    Many parents want to help their (adult) children financially. The common way they do this is to just either hand over a large sum of cash (or bank transfer).

    There are 3 main issues to consider before doing this:

    Bankruptcy of either parent or child

    death of either

    divorce/separation of the child

    If the child ends up bankrupt the parent then argues that the money they transferred was really a loan. But there is no evidence of an agreement. There is also no security taken, so if the parent did lend the money to the child at best they would be an unsecured creditor.

    Of course if the parent were to go bankrupt it would have been better that the money was a gift. In this case planning which parent lends or gifts can be important – perhaps the parent least at risk would be the better choice.

    If the parent dies other family members may argue that the transaction was a loan. the executor may need to sue the child to recover the money so it can be passed via the will. If the child dies then the parent’s money may go via the child’s will to others – perhaps the spouse who could then remarry. You want some control. You also want to avoid costly legal fees if there is a legal argument of gift v loan.

    Often when the child’s relationship breaks down the parents will claim the money was a loan and try to recover it. This is to reduce the chances of the money ending up with the spouse in the property settlement. Naturally the family courts are suspicious of these sudden ‘loans’ unless there is evidence.

    Solution – decide before transferring if the transaction is a loan or a gift and document it either way. If it is a loan consider taking security – a second mortgage for example. You will then be a secured creditor.

    http://www.Terryw.com.au

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://Terryw.com.au/

    Profile photo of hugoismydoghugoismydog
    Participant
    @hugoismydog
    Join Date: 2011
    Post Count: 17

    Hi Terry,

    Thanks again for reassuring me.

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