Are interest-free loans considered gifting by Centrelink?

Connie wants to know if she can avoid the gifting rules if she lends money overseas.

Q. Connie
Will interest-free loans made to a relative overseas without a repayment timetable be included by Centrelink as part of the gifting rules?

A. They will not be included as a gift; however, it will not change your Age Pension assessment.

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This is because any loan, whether it is made to a family member or a friend, or a person living in Australia or overseas, is still considered an asset by Centrelink.

As a loan is an asset that you still have, you must make this information available to Centrelink.

For example, if you are assessed as having $300,000 in the bank currently and you decide to lend a family member living overseas $100,000, you are still assessed as having $300,000 in assets.

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If you are instead looking to reduce your assets for a Centrelink assessment, you are allowed to gift up to $10,000 in one financial year or up to $30,000 over five financial years, but this cannot include more than $10,000 in a single financial year.

If your gift is over this amount, Centrelink will count the excess in your assets test and also apply deeming and include it in your income test.

Any amount over the gifting limit will cease to be counted as an asset five years after the gift is made.

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If you are providing a loan to a family member overseas, even if it is interest free you should still set a repayment timetable and you should establish a loan agreement that covers how long the loan is for, any security for the loan amount, how much the loan is for and the purpose of the loan.

You might think that these things are not important and that you trust the family member, but there are situations where beneficiaries may argue about the purpose of this money down the track. Having a loan agreement can clear up any potential problems.

As always in these matters, it is best to consult with a financial or legal expert to ensure that everything is covered properly.

Have you ever made a loan to a family member that went wrong? Did you ever recover the money or was it lost?

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Disclaimer: All content on YourLifeChoices website is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a Centrelink Financial Information Services officer, financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances.

Written by Ben



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