Tax Implication for Cash Gift Received from Parent

SydBoy on 28/03/2017 - 18:14

Hi, everyone

I would appreciate an advice on tax implication for cash gift received from parent.

My parents are giving me money to pay off my remaining mortgage….!! The catch is i have to pay back on monthly installment but at 0% interest rate.

They want to help me and save interest rate that goes to bank.

Any idea if that amount taxable i.e. i have to pay tax on that amount and how do i get it in writing from ato that the amount my parents giving me is not taxable.

There is no point in taking money if i have to pay tax on that as my parent earned that after paying tax !!!

I found following on ATO website :
"rewards or small gifts such as cash birthday presents (however, gifts may be taxable if they are large amounts or you receive them as part of a business-like activity or in relation to your income-earning activities as an employee or contractor)."

Now how much is small amount as for some 100k is small while for some 20k is large…!! Why can't ATO gives clear rule & regulation.

Thanks

Financial

Comments

  • chumlee on 28/03/2017 - 18:20

    Why would you be paying tax if you are putting the money straight into the mortgage or are you saying it's going in an offset account as even in an offset account the interest from the bank is tiny if they even pay interest on offset accounts

  • mranderson978 on 28/03/2017 - 18:30
    +12

    If you have to pay it back, it's not a gift. It's a loan.

    If it was me, I wouldn't notify the ATO about it at all.

    • SydBoy on 28/03/2017 - 18:31

      Thanks

  • SydBoy on 28/03/2017 - 18:30

    I am assuming that i need to declare where i get the money as the transfer of money will be through bank account. Last thing i need is to pay tax after the transfer.

    • mranderson978 on 28/03/2017 - 18:34
      +3

      You don't because it's not income.
      The only thing you have to worry about is interest earned which is paid to you by the bank. Interest must be declared as income.

  • retiredfeline on 28/03/2017 - 18:32
    +9

    It's not income or a work related gift so not taxable. Keep calm and carry on.

    • SydBoy on 28/03/2017 - 18:39

      Thanks

  • greencomet on 28/03/2017 - 19:58
    +2

    Be careful if your parents are providing money from overseas as Austrac will generally question any large transfer, particularly if going to an individual's bank account. You are at further detection risk if your monthly repayments are being paid back overseas.

    Your parents can give you quite large amounts because of 'natural love and affection', but the fact that you need to repay the amounts may raise questions as to how much of the money is a 'gift'. If the ATO think that the 'gift' is instead a loan, they can elect to tax your parents at a commercial interest rates, irrespective of whether you actually pay any interest. If they live overseas, you may may have a withholding tax obligation.

    If your mortgage is for the house you live in, you won't be entitled to a tax deduction for (any) interest paid.

    If the money isn't coming from overseas, the detection risk by the ATO is quite low and you should be ok, simply documenting the agreement for your own records without providing anything to the ATO.

    From a family protection perspective, make sure you document your arrangement, even if you never intend on sharing the document to the ATO, particularly if you have siblings. Nothing is worse than a family fight over a misunderstanding about money.

    If in doubt, call the general ATO hotline and confirm with them, just don't tell them your full name or tax file number.

    • burningrage on 28/03/2017 - 22:14

      This is a scenario very common for Overseas Students who receives periodical cash from their parents overseas.

      Such receipts ARE NOT taxable. Likewise paying them back is also NOT taxable.

    • SydBoy on 29/03/2017 - 06:25

      Thanks for detailed response, however I beleive irrespective of where money comes from this transaction should be treated as family matter and parents who are giving money already paid tax (overseas or locally)….i am sure ATO prefer double dipping but thats not ethical.

      Giving back money to your parent is not a loan….as again if you look after them when they are old is not the service…its just love.

      • greencomet on 29/03/2017 - 08:55

        Enjoy explaining that to the ATO if they pick it up as being a loan, you won't get far.

  • try2bhelpful on 28/03/2017 - 20:24
    +1

    Probably should take to the ATO and find out a ruling. It will give you peace of mind as you proceed.

  • coin saver on 28/03/2017 - 21:13
    +1

    If your parents are on benefits be aware that they can only gift you $10,000 per year up to a maximum of $30,000 over a 5yr period without affecting their benefits. https://www.humanservices.gov.au/customer/enablers/gifting

    • SydBoy on 28/03/2017 - 21:32

      They never received any benifit throughout their life.

  • thechemist on 28/03/2017 - 21:37

    Not a cash gift, title should be tax implication of a no interest loan. Good documentation (something written by someone with a legal background) in case of divorce etc to protect your parents money. Also the documentation may come in handy if you get called up by ATO or if you get investigated for money laundering/proceeds of crime (I know its unlikely). Just get the documentation done properly

    • SydBoy on 28/03/2017 - 21:51

      Good suggestion …thanks

  • jace88 on 28/03/2017 - 22:06

    What kind of quantum are we talking?

    • sky blu on 29/03/2017 - 15:07

      It's an immeasurable quantum of family love.

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