How is a loan repayment assessed?

What happens when you borrow money, then lend it to one of your children and they can’t pay it back? Then what happens after you’ve covered their repayments and they pay you back? How does Centrelink assess this? Noel Whittaker has the answer.

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Q. Gerald
As parents often do, we have helped out our son financially. He tries to run a business but is handicapped as he is bipolar. To help fund his venture, we took out a loan on his behalf rather than use our savings.

The idea was that he would repay the loan in monthly payments. That dried up after four payments. I decided that rather than us keep up the payments I would pay off the loan, which has left us very short.

The concern now is that if our son repays the money borrowed as a lump sum, he has sold his house, will we be taxed because of this payment? My wife and I receive part pensions. We stopped working aged 65 and have been retired for 15 years.

A. My answer must be general, because you have given no idea of the amount of money involved. There is certainly no tax payable on the money that you have paid to reduce the loan, but I note that you receive part pensions and if the money is in excess of $10,000 in a year, or $30,000 over five years, the excess will be treated as a deprived asset and could have implications for your pension. You also say that you are ‘very short’ as far your finances go. Therefore, it would appear that Centrelink is already assessing the money as a loan to your son. Your best course of action is to take advice about your entitlements.

Do you have a question for Noel? Send it to [email protected].

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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 the 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 financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances.

Written by Noel Whittaker

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