Family Loan

[#1]

My parents have kindly agreed to lend me money to buy my first home. The plan is that they will give me the full amount of the property purchase price so my cash offer is more competitive. I will then get a mortgage to pay back half of the loan interest free so my siblings can also benefit. The other half may never get paid back and no interest will ever be charged. What are the tax issues for me and my parents?

[#2 · Accepted solution]

If the money has come from the personal savings of your parents there is no  extra tax payable by either your parents or yourself.  

Just in case the ATO or another Government agency knocks on your door in the future, it would be best to make sure that the arrangement is documented and the source of the funds can be fully explained.

If you parents currently, or my in the future, receive payments from Centrelink this arrangement may affect the amount they receive.  For this and other reasons it is important to decide from the start to what extent the payment is considered to be a loan and/or a gift.

[#3]

Thanks for that - appreciated.

Does the situation change at all if I pay back half the loan amount by getting a bank mortgage and the remainder remains outstanding (with no interest) until my parents pass away when it is then deducted from my share of my eventual inheritence? 

It is structured as a loan because my parents want to be able to demand repayment if they ever need the money back.

[#4]

When the original amount is paid by your parents, the full amount would be considered a loan.  When you obtain the mortgage to repay 50% the amount of the loan is reduced.  There would still not be any tax issues with this proposal.

You have clarified that the remaining balance is to be treated as a loan. Centrelink should be comfortable with that, although they will deem your parents to have earned interest on this amount (even though the loan is interest free) when calculating any payment entitlements.   It would also be wise to ensure that details of the loan are included in your parents' wills and that you keep records of any repayments that you make.