Legal/Tax Issues with Receiving a Lump Sum and Throwing It into My Offset Account?

L21Clock on 15/08/2018 - 20:35

Hey everyone

So my grandma has $200,000 that she has just been throwing into a term deposit for decades. I have a mortgage with CBA on a house I own, which has an offset account.

She has said to me - why don't I give you the $200,000 to put into your offset account and save you some interest, and you just pay me what I would have got if I had put it into a term deposit?

Is this a decent idea? Are there any legal or tax issues I should be aware of, for me or her?
Also, would my bank be pissed at this? Could they do anything to me that I'm not aware of?
What should I be checking with the T&Cs of my loan so I don't get into strife?

Has anyone else done this before?

Cheers everyone.

P.S. I AM AWARE THAT FAMILY AND MONEY SHOULD BE MIXED WITH EXTREME CAUTION. ASSUMING NOONE BACKSTABS/STEALS FROM ANYONE ELSE.

Financial

Comments

  • altomic on 15/08/2018 - 20:47
    +2

    some home loans have a maximum amount you can have in an offset.

    call your bank and ask them how much that is.

    • 21Clock on 15/08/2018 - 20:58

      Thanks mate will do!

  • Zedsdeadbabyzedsdead on 15/08/2018 - 20:48

    "P.S. I AM AWARE THAT FAMILY AND MONEY SHOULD BE MIXED WITH EXTREME CAUTION. ASSUMING NOONE BACKSTABS/STEALS FROM ANYONE ELSE."

    LOUD NOISES!

    • 21Clock on 15/08/2018 - 20:58
      +1

      I love lamp

      • Zedsdeadbabyzedsdead on 15/08/2018 - 21:37
        -1

        Are you just looking at things in the office and saying that you love them?

  • payton on 15/08/2018 - 20:53
    +5

    If your gran backstabs you that'd be one hell of a pub story

    • dasher86 on 15/08/2018 - 20:58
      +4

      Must be a fast gran and good with a knife, that or sneaky.

    • 21Clock on 15/08/2018 - 20:59
      +1

      Revenge of the Grannies

  • djkelly69 on 15/08/2018 - 21:24
    +1

    No issues on your end, but she is still earning interest so technically should be declaring the income.

  • sssx on 15/08/2018 - 21:24

    As altomic said, some may have a maximum in the offset - others may have a maximum you can contribute in <period>.

    Is your offset 100%? Some only offset e.g. 75% of the value put into the offset.
    Is the property your residence, or an investment property?
    What rate are the term deposits?

    Earning income = taxable, assuming the person earning the income is earning above the tax free threshold.
    Reducing the interest you pay on a mortgage = not taxable.
    If it's an investment property, keep in mind you'll be reducing how large the 'interest repayment' tax deduction is that you can claim.

    Work out the figures to see whether it's worthwhile or makes much difference.
    e.g. 2.6% TD vs 4% mortgage with a 35% tax offset (does that make it a 2.6% mortgage???), maybe it's 'break even' and not worth the fuss?

    Unless someone else knows, google 'gifting money to family' type things. Any transaction over $10,000 will be noticed. It may be fine - I just don't know what the legal/tax rules are around 'gifting' or transferring that kind of money around. I know that's probably what you're asking about, but yeah, always good to do your own googling as well.

  • jug123 on 15/08/2018 - 23:00
    +2

    If shes on a pension they will want to know where the money went. If the Govt treat as a gift there's only so much that can be transferred without it affecting the pension. It would be worth you speaking to someone at Centrelink or an accountant

    • CheapskateQueen on 15/08/2018 - 23:45
      +1

      if she already has the money it's already an asset. even if she did try to gift it, it doesn't change the value of the asset.

      an apple is an apple. value doesn't change

  • CheapskateQueen on 15/08/2018 - 23:49
    +6

    there are no tax consequences from a gift.

    also your gran isn't even gifting you the money anyway.

    what you're suggesting makes smart sense. it's what i do and have recommended to others with strong warnings about mixing money and family.

    to make it lucrative for both sides i usually suggest a half way point in the interest rate. you pay slightly less interest than your mortgage rate but.a slightly higher interest rate than your gran gets from the bank. not sure what the rate discrepancy is these days.

    if your property is an investment, the calculation becomes a bit harder and less worth while

    • AdamFury on 16/08/2018 - 01:32

      +1 on this. Makes sense and have done similar things in the past.

    • Jalif on 16/08/2018 - 11:39
      +2

      I suggest a written contract of sorts, stating everything clearly, including:
      *What happens when your grandmother wants to withdraw the money
      *What happens if either party dies
      *What happens if the loan is no longer current
      *What interest rate will be paid and on what terms

      It will make things a little uncomfortable at first, but will avoid drama later.

  • sssx on 16/08/2018 - 10:56
    +1

    From https://www.smh.com.au/money/ask-noel-is-there-any-gift-tax-…

    In a recent column you said that there is no gift duty in Australia in relation to a gift of "a large amount". I thought there was an annual restriction on gifts of $10,000 a year with a limit of $30,000 over five years and that gifts greater than that did attract some kind of duty or tax.

    There is no gift duty as such in Australia – however for Centrelink purposes there are rules aimed at discouraging people from giving away assets with the purpose of achieving a higher age pension. The $10,000 a year, $30,000 over five years, which you refer to, are the maximum amounts a person can give away without affecting their pension. Centrelink treats sums in excess of this amount as a deemed asset for five years from the date of the gift. Your sister may have to pay stamp duty.

    ~~~~

    From https://www.adviserratings.com.au/news/how-much-tax-do-you-p…

    The gifting rules apply to any gifts made in the 5 years before receiving a pension or allowance, so if you are considering applying in the next five years for Centrelink you need to advise Centrelink of the gift at the time.

  • HeWhoKnows on 16/08/2018 - 12:02
    -1

    OP hasnt stated if the "house" is his residence or an investment property.

    Assuming its the residence then grandma should declare any interest received as income though if its done as "cash" the grandma saves in income tax. So a win-win situation
    One could argue the amount paid to grandma is a "gift" since no formal loan has been set up, especially if its paid on an "ad hoc" basis rather than a "periodic" basis.

    Alternatively if for Centrelink purposes the "declared" income could be "minimal" just to satisy them that grandma is not reducing her asset base.

    OP also has control of the money whilst in his offset account giving him a distinct advantage in the "future". Especially if no formal documentation has been drawn up.

    I'd say its a definite goer. the bank should not have any issues as usually there is no limit to what you can have in an offset account. Limits only apply usually on lump sums put directly into a loan.

    • sssx on 16/08/2018 - 15:35

      I don't think the house being a residence changes whether grandma should declare the income, she's earning an income either way. It also technically isn't a gift if she's expecting something in return (which she is by way of interest payments); it's more like a loan/business transaction. This would mean it's taxable as it's not a gift. May not realistically end up being considered that, but according to the technicalities …

      On the other hand, if once in a blue moon OP feels generous and want to give his grandma a thank you gift for how generous she was in gifting him 200k, well, that's different to regular term deposit payouts. Would a contract (to protect family from each other) that specifies interest payments to the grandma mean it's legally a business transaction?

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