Hi Guys,
Just wanted to know if anyone has any experience of the following:
1) i have a house loan of about 350k.
2) My parents are planning to sell their house
3) I wish to hold some of my parents' money in my offset account
4) I intend to return this money once my parents have concluded their affairs here and will be moving back to their home country.
my main concern is whether this would be counted as 'gifting' or even counted as an income stream. What do you think?
thanks
Oneiricer
Any good tax accountants/lawyers on OzB?
As with anything, earn interest (which ATO considers income) it'll be tax alright! If you're in top bracket, put it in your Double Dutch Irish sandwich like Google and Apple, oh wait…
Nope, sorry not much else you can do really. But hey if you can get a good IR, say over 4.5% for that period than it's better than nothing. What is the amount you're talking? Anything over 100k would make it worthwhile for sure!
No issue from a tax POV:
* Interest saved (like from an offset) is not interest earned (like from a savings account) - therefore you wont pay tax on any of the interest you save by dumping it in offset.
* There is no such thing as a gift tax in Australia.
Be weary from a Centrelink POV, as there are gifting rules that could cause them issues - I just dont know them well enough to talk about them.
No gift tax, but a limit on what can be claimed 'tax-free' per year as 'income'.
My understand is that the off set account helps both parties, The son doesn't have to pay interest on his loan and the pay of is the parents don't receive interest from the large sum of money that would just sit in an account (they also don't have to pay tax because of this). At least that's how I think it works for my brother in-law. Please correct me if i'm misinformed
How does it help his parents? If the parents park it in a savings account they will ear interest (minus tax depending on their other income). If they give it to OP, they don't get anything (except may be love)!!
it helps his parents if he pays them some tax free interest
If the parents want to help the son out i would park it in the sons offset account
Mortgage rate is at a guess charging 5% interest, savings account accrues 2% interest.
The bank is still gaining 3% of the money. The bank wants you to put it in the savings account. If its what the bank wants you to do, do the opposite :)
Damn came in here to see how you park a Monkey ;)
…lol…. :)
I've just proposed this to my parents too.
They're savings in a term deposit accrue interest at about 3.7%, and they pay tax on that. My mortgage charges interest at 4.85%.
We are happy to pay them 4.5% interest on whatever they put in our account.
What I haven't been able to clarify from the response, which is also what the OP may be interested in, is: when we give the 'interest' back to my parents, do they have to declare that as taxable income?
They can earn 3.7% which they would have to pay tax on (assume 30%) which gives them 2.59% after tax.
The 4.85% you save is tax free so to speak.
I would meet them somewhere in the middle of 2.59% and 4.85% to be fair if you are simply "gifting" the interest back them.
Why not pay back in kind
e.g. pay a bill for them or get them a charge card for petrol or something
Then they never 'receive' the cash anyway so no income/tax implications
If you have your own business you could even try to hide this under your legit business expenses and claim a tax deduction and GST back!
I did a similar thing with my parents and have lump sum now offsetting our mortgage 100% and I pay them 1% less interest rate.
I phoned tax office few years ago beforehand as didn't want to incur tax, or questions about large bank transfer, etc.
I recommend you do the same and get a reference nunber from ATO. And check rules haven't changed. I found them very helpful.
Basically I didn't need to declare anything or incur tax. But IF you pay your parents interest, then they need declare it as income, and I remember her mentioning them informing centrelink too
thank you everyone for your responses. Just to respond to some of you, i prefer paying my parents interest compared to paying the bank. Together as a family we might be able to screw the big financial institutions!
Also the AUD has decreased substantially in the last year, i should be able to convince them to hold it in AUD until it appreciates later on…. then everyone wins :)
I will make a call to the ATO about this. thank you all once again.
If you park it in offset, it's not income, it's not a 'gift'.
It's just money that has no relevance to the tax office in terms of taxability (on your side, your parents are a different story).