# Loans from family/friends



## VSntchr (13 March 2013)

Does anyone have experience with loans from friends and family for investment purposes?

From the borrowers side: Is the interest still tax deductible? Is there anything specific they must declare to the ATO/any other regulatory body?


From the lenders side: is there anything they have to do? I assume they will have to declare the interest as assessable income..



Also, anyone had any bad experiences?


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## tech/a (13 March 2013)

VSntchr said:


> Does anyone have experience with loans from friends and family for investment purposes?
> 
> From the borrowers side: Is the interest still tax deductible? Is there anything specific they must declare to the ATO/any other regulatory body?
> From the lenders side: is there anything they have to do? I assume they will have to declare the interest as assessable income..
> ...



Other than breaking the law.
Your not licensed

If you lose the lot you could be sued for it.


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## Klogg (13 March 2013)

tech/a said:


> Other than breaking the law.
> Your not licensed
> 
> If you lose the lot you could be sued for it.




Actually, you can take a loan from anyone... It's the investment advice/decisions that would get you into trouble


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## skc (13 March 2013)

VSntchr said:


> Does anyone have experience with loans from friends and family for investment purposes?
> 
> From the borrowers side: Is the interest still tax deductible? Is there anything specific they must declare to the ATO/any other regulatory body?
> 
> ...




Yes the borrower interest should be tax deductible and the lender interest income is assessible. 

I would say those consider doing it should seek at least the advice of an accountant to a) confirm the tax implications and b) to draw up the loan contract both as evidence to the ATO if audited and as (some) protection to the parties involved.

But old saying that don't mix money with family/friends is probably right in many circumstances.



tech/a said:


> Other than breaking the law.
> Your not licensed
> 
> If you lose the lot you could be sued for it.




No law is broken... You don't need a license to lend someone money.


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## McLovin (14 March 2013)

VSntchr said:


> Does anyone have experience with loans from friends and family for investment purposes?






VSntchr said:


> Also, anyone had any bad experiences?




Do you really need that questions answered? 

The upside is limited, the downside is you lose your money and a friend.


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## Smurf1976 (14 March 2013)

I would only suggest lending to family or friends if you are willing to accept a 100% loss on the loan. That is, take it as a gift and consider it a bonus if you are ever repaid the money. Certainly don't expect a cent in interest - at least not if you want to remain on good terms with whoever you lent the money too.

Loans of this nature are one of those things that sounds like a good idea in theory but which is usually a bad idea in practice. Lending money is the surest way I know of to lose friends and I won't go there unless it's a truly desperate situation, in which case I'll consider the "loan" to be a gift and will never ask for or expect repayment (though I'll accept repayment if it is offered at some future time).

The whole thing is fraught with risk, simply because in order to have a purely commercial arrangement you need to put aside the friendship / family. Since most people don't think that way it's a path to trouble in my opinion.


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## tech/a (14 March 2013)

I'm reading the question as a loan for investment purposes.
I'm perhaps incorrectly reading the investment as investment
In stocks etc.
I'm reading it as a way for friends and relatives to invest in shares
The original poster selects---calling the fund raising a loan.

That way it can't be traced as financial advice
Until someone loses the lot and takes action.

My presumptions are possibly wrong.


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## Ijustnewit (14 March 2013)

As far as my experience with this goes , If a loan is declared a gift the ATO is not able to tax it ? Now for the person loaning/gifting there could be implications with the ATO and also with Centerlink if the person gifting/ loaning is receiving a pension or part pension. I think the limit is up to $20,000 per calander year. I would suggest you contact your accountant or relevant government bodies for the full implications to both parties.
Also I would suggest a written and signed contract between the two parties , with things like interest , terms and covering extreme circumstances that may arise like hardship or death. As said it's best to get the advice from an accountant  or relevant Government bodies. Also when dealing with persons at Centerlink for example get it in writing , different staff may have a different take on the situation and unless it's in writing it's worth nothing.

Cheers
IJN


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## Klogg (14 March 2013)

tech/a said:


> I'm reading the question as a loan for investment purposes.
> I'm perhaps incorrectly reading the investment as investment
> In stocks etc.
> I'm reading it as a way for friends and relatives to invest in shares
> ...




My take on it is that he wants a loan for investment, someone is lending to him for X% interest rate. There's still no need for licensing. It's only once you start providing financial advice that you need a license.




> If a loan is declared a gift the ATO is not able to tax it ?



No, but if it's declared as a gift, he legally doesn't owe anyone any money, it has been given to him.

If a company is loaning to an individual, Division 7A applies and you need to charge interest at a minimum rate as defined by the ATO. However, if it's an individual loaning to another, the interest rate can be whatever they agree on, and the interest taxed on the lender's taxable income.
To avoid tax but not have it as a gift, you'd just have a zero interest rate (which can be done between individuals).

Of course, this is only my understanding - best speak to someone who can actually provide advice.


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## Country Lad (14 March 2013)

VSntchr said:


> Does anyone have experience with loans from friends and family for investment purposes?




My comments are made from the basis of commonsense, not any specific legal/taxation knowledge.

 I assume here that someone is giving you a loan to do with as you wish, same as getting a personal loan say from a bank with the house being collateral.  



VSntchr said:


> From the borrowers side: Is the interest still tax deductible? Is there anything specific they must declare to the ATO/any other regulatory body?




If you are paying interest and the funds are being used to wholly and solely to generate a taxable income, then I would see the interest being tax deductible.  



VSntchr said:


> From the lenders side: is there anything they have to do? I assume they will have to declare the interest as assessable income..




Yes, and if they do not declare the interest in their assessable income then the borrower's tax deductibility would be questionable and both parties could have a problem with the Tax Office.



VSntchr said:


> Also, anyone had any bad experiences?




Bad stories about investing with other peoples' money abound when losses are incurred and friends fall out, family feuds start etc.  Practical advice is don't borrow from family or friends - go to a bank or if purely for playing in the share market get a loan from the bank or a loan shark, go for margin loans or just don't trade until you save your own funds.

Cheers
Country Lad


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