Tax Implications of Large Money Transfers

bingsta on 05/10/2020 - 20:34
Last edited 05/10/2020 - 20:34

Hi just wondering about the legalities / tax implications of the following scenario:

If I currently had 100k savings in a low interest savings account (~0.9%) and wanted to transfer that instead to a family member's homeloan offset account as a gift (where it would essentially be getting an interest rate of ~2.7%) and get that family member to refund me the equivalent of the 0.9% I would have got in my savings account, would there be any tax implications in doing this (presuming I still declare that 0.9% as income)?

Hope that makes sense…

Thanks in advance

Financial

Comments

  • tomsco on 05/10/2020 - 20:49
    +1

    I mean at $75-80/month, is it worth declaring? What if they send a years worth to you on your birthday.

    I know I’m advocating tax fraud, but for such a low amount between family, I doubt it would be investigated.

    • jv on 05/10/2020 - 20:51
      -3

      You are advocating tax fraud…

      • tomsco on 05/10/2020 - 20:53
        +4

        I know. I explicitly stated that.

        • jv on 05/10/2020 - 20:55
          -4

          I know. That is why I confirmed it.

          • tomsco on 05/10/2020 - 20:56

            @jv: Well played

            • RockyRaccoon on 05/10/2020 - 21:19

              @tomsco: A number of points.

              1 read whooah's post below.
              2. If the OP wants to formalise the interest rate they want to receive as in a commercial sense its Taxable. No declaring it is an offence
              3. If OP makes private (not legally enforecable as like in commercial dealings) arrangements for the loan then its unlikely to be taxable.
              4. The OP would be wise to have some lien over the family members assets to protect their capital. Family members can default.

              Frankly if I was the OP I would be asking a higher interest rate. Maybe more in line with Ubank/Rabo/ING deposit rates as its tied up longer

      • IVI on 05/10/2020 - 23:00

        Maybe worse… Could it look like
        the "White Collar Crime" of Money Laundering…?

        I just viewed a TTC (or TGC?) video course
        with a friend:

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        taught by a former (US) [ass't?] Federal Prosecutor.

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        Disclaimer: I am Not Now, nor have I ever been,
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        IVI on 05/10/2020 - 23:00 (Collapsed - Offtopic. Show)
    • IVI on 05/10/2020 - 22:43
      -3

      Maybe just -mention- as an option, in case
      some new law would deem you liable, if u
      "advocated" (unlawful) tax fraud…

      PS I advocate the use of ILLEGAL Sustain-
      able Energy (ie, Nuclear'), which is now
      -STUPIDLY- deemed unlawful in AU.

      (See France's stat's - in app "ElectricityMap"
      & compare its LOW tariffs to EU's others…

      • Cf: YouTube "Renewable Energy is the SCAM we all Fell For"
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      ie, if we Go Nuclear when "Liquid-Fuel MSR's
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      If you "don't think good things can come
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      Enjoy!

      IVI on 05/10/2020 - 22:43 (Collapsed - Offtopic. Show)
      • octeau on 05/10/2020 - 23:13

        WTH dude

    • LordSydney on 05/10/2020 - 23:13

      < _ < hello ATO > _ >

      • tomsco on 06/10/2020 - 06:57

        Yes officer, this man over here.

        ☜(꒡⌓꒡)

  • bobbified on 05/10/2020 - 20:50
    +3

    Nope. You've already paid tax on the $100k in your savings account.

    • jv on 05/10/2020 - 20:51
      +2

      You have to pay tax on the interest too…

      • bobbified on 05/10/2020 - 20:54
        +1

        The family member receiving the cash will not be "earning" - they'll just be paying less interest on their loan. With the interest they "save", they can do whatever they want with it - including giving it back to the OP.

        • jv on 05/10/2020 - 20:55

          With the interest they "save", they can do whatever they want with it - including giving it back to the OP.

          That is called income.

          • bobbified on 05/10/2020 - 20:56
            -4

            @jv: That's not called "income". It's called "less expenses". If the loan is linked to an investment property, then they won't be able to claim as much interest expenses when it comes to claiming a tax deduction.

      • whooah1979 on 05/10/2020 - 21:03
        +3

        https://community.ato.gov.au/t5/Personal-tax-questions/Gift-…
        Generally, money given as a gift from a family member for personal reasons and the gift isn't connected to any income-producing activities by you, is not assessable income and not required to be reported in your tax return. However, any interest earned on the money in an Australian bank account will need to be declared as interest in your tax return and subject to tax.

        • adam on 05/10/2020 - 21:56

          But it's not a gift, it's income from an investment.

          Look, you can lie and likely will get away with it, but if you want to be truthful then you need to declare it as income and pay tax on it.

          • whooah1979 on 05/10/2020 - 22:11
            +1

            @adam:

            If I currently had 100k savings in a low interest savings account (~0.9%) and wanted to transfer that instead to a family member's homeloan offset account as a gift

            OP want to gift a family member $100k from their saving account. The $100k won't be earning any interest while it's in the borrower's loan account.

            • IVI on 05/10/2020 - 22:50

              @whooah1979: An alternative:

              RateSetters (now: "Plenti" I think) offer (non-bank)
              Peer-to-Peer Lending… You can fund some loan(s)
              & get [taxable] interest-levels that you can lock-in,
              of ~6% it varies, until you invest at an Offered rate.

              At least worth a look (see earlier "Deals" on it, by
              either name, but rely on info from Plenty.com.au,
              as they changed more than name…)

              PS A longer-than-expected COVID' pandemic era
              could make it impossible for your relatives to return
              your principle at sometime in the future… Why take
              the risk?

              (Plenti as, at least, a growing fund that can be used
              to [help] compensate Investors, if your Lender(s) de-
              fault)

              At least 1 lender category is p/o some State's
              Energy scheme [to help residents buy Solar?]

          • jv on 05/10/2020 - 22:11

            @adam:

            and likely will get away with it,

            Ha ha… You've never dealt with the ATO.

          • bobbified on 05/10/2020 - 22:57
            +1

            @adam:

            But it's not a gift, it's income from an investment.

            What investment? It's a family member's homeloan offset account. It doesn't earn any income in the offset account.
            If it was going into a family member's savings account, THEN tax would be payable on the interest earned in that account.

            If I gave my brother or sister $5000 to pay off their credit card so they don't pay interest on the amount owing, would he/she or I be subject to tax? Of course not.

            • whooah1979 on 05/10/2020 - 23:22
              +1

              @bobbified:

              If it was going into a family member's savings account, THEN tax would be payable on the interest earned in that account.

              Most of the major banks pay 0.00% interest. They just want customers to park their money there for free.

  • bingsta on 05/10/2020 - 22:47

    Thx for the replies so far.

    Forgetting the 0.9% refund, lets say I were to loan the family member the 100k to park in their offset for them to reduce their interest and then have them pay it back to me in say 5 years. When they paid it back would it be flagged with austrac and require explanation to the ato?

    As someone inferred, it would be silly if this was subject to tax as tax has already been paid on it.

    Just wanted to know if it would be likely to trigger some sort of audit which I'm keen to avoid…

    • atomX on 05/10/2020 - 23:00

      Unlikely to trigger an audit or require an explanation from the tax office. At most, your bank may enquire as to the source of funds of which something like "they are paying me back for money I left 5 yrs ago" is pretty much going to suffice for them.

    • Donaldhump on 05/10/2020 - 23:03

      Doubt it, if it is tell them the go, none of their business otherwise.

      IMHO you problem should declare it as income but why not just have this relative by your groceries once a month instead, and when ur done have the 100 xfer red back.

      Or invest it yourself

  • jimdotpud on 06/10/2020 - 11:49
    +1

    the gifting is no issue. reducing the interest on their loan, no issue. no tax implications yet.
    the moment they pay you back anything over and above the 100k it is taxable income.

    the only way to not pay tax on this and have at least one of you have some benefit is to have them pay you a monthly installment as a principle repayment without interest and stop at 100k.

    EDIT: write it up as a payment agreement or as per your 5 year plan above pay in full after 5 years. you have documented evidence to provide to an audit. a loan without interest is not taxable.

    • bingsta on 13/10/2020 - 20:15

      Thanks. Where do you get the 100k figure from? Is this written in stone?

      • tomsco on 16/10/2020 - 09:48

        The $100k is your figure. Basically jim is saying treat it as a non-interest bearing loan. So over the 5 years, they pay back a portion of the $100k monthly.

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