Interest on loan to family member

[#1]

I am retired, and I have some cash reserves. I am going to lend my son $100,000 towards the purchase of his first home. I intend to charge him interest, at the same rates at the major banks. He will make monthly principal and interest repayments to me. Do I need to declare this interest earned as taxable income?

[#2]

Hi SmartDaddy,

Yes you do

[#3 · Accepted solution]

Hi @SmartDaddy,

As @MCA_Accountants has said you would have to include this as interest income in your tax return as what you have described takes on the characteristics of a commercial or  business-related transaction.

We have had a similar question answered here before which you might be useful to look at.

Hope this helps! Thanks, NateH

[#4]

Thanks, NateH and @MCA_Accountants. I just read through the scenario to which you referred, and it seems to me that my situation has the characteristics of a private arrangement:

1. The loan would not be legally enforceable, it would not be officially recorded or registered.

2. Also, the interest charged by me would be the same as the interest offered by the big banks on a secured basis, and yet I would have no security.  Lending at the same rate without similar security would be a factor pointing to a private arrangement.

Thoughts?

SmartDaddy

[#5]

Hi @SmartDaddy,

Based on that information then it would seem that your situation is pointing towards a private agreement. It would be a good idea to keep documentation about why it is a private agreement in case if it ever gets checked in the future.

Thanks, NateH