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Family Loan

Discussion in 'Accounting, Tax & Legal' started by mi65ni, 23rd Dec, 2012.

  1. mi65ni

    mi65ni New Member

    25th Aug, 2012
    Newcastle, NSW
    Hey Guys,
    After comments with regard to my idea. My G'Dad is willing to loan me an amount of money, and i will pay him interest. Win win, as he gets more interest than term deposits and i pay less interest to him than i am charged against my home loan (which is where i will store the money).
    He is on the pension, so the smaller the return for him the better, this is where i know little about, such as asset limits etc. Thinking i will pay him a smaller amount of interest thus increasing pension? And tell him how great of a G'Dad he is at his birthday with a birthday present cheque.

  2. Terryw

    Terryw Well-Known Member

    9th Jun, 2006
    have you considered the deeming rules? he may may assessed at earning a certain percentage if getting a lower rate.

    also you should . have a proper written a loan agreement for several reasons such as death of one party. without an agreement there will be confusion and possible disputes.
  3. zudjian

    zudjian Member

    25th Nov, 2011
    Melbourne, VIC
    Terryw is right. Refer 4.4.2 Deeming of Financial Investments

    Loans to family members will be deemed under the income test therefore the actual rate your father gets is largely irrelevant for Centrelink purposes. By rights, your father should aim for the highest return he can get.
  4. GregR

    GregR Reid Consultants

    13th Jul, 2009
    Berwick Vic
    The theory is good, he lending you money can result in a win win, he gets a better rate than his current term deposit rate and you get a lower rate than housing loans or personal loans whatever. You may want to use a 100% linked offset to store the money so it is accessable at any time to you and still achieve the same result.

    Terryw is correct, if your dad is on the pension, his current savings will be assessed under both the asset and income tests. The income test uses deeming rates irrespective of what he actually earns, so anything above what he currently earns on a TD will be a bonus to him and should not effect his pension.

    Get a written agreement as Terryw suggests to protect you both and to include how and when it is to be repaid. If you are sole beneficiary, it may not be as critical.