How does Centrelink assess a lump-sum loan repayment?

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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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Written by Noel Whittaker

4 Comments

Total Comments: 4
  1. 0
    0

    Government departments obviously have rules & reg’s so they are able to deliberately reduce to the enth degree the amount of money they pay pensioners & other allowance recipients. However in this case scenario, Gerard & his wife have ” gone elsewhere ” to get the loan for their son; at no cost whatsoever to Centrelink.

    Therefore; it’s only fair that because of Centrelink’s ” no-cost gain ” any lump sum reimbursement from Gerard’s son, should be fully exempted by Centrelink in its assessment of the ” part-pension ” they pay Gerard & his wife.

    • 0
      0

      The issue in this case is Gerard and wife reducing their assets to pay off the loan on behalf of son, whatever that means. The son’s benefit has received the cash so it would be unsurprising for it to be caught up under the gifting restrictions.

  2. 0
    0

    If it was below $10,000 why would it be reported at any Stage.
    Above needs to be Reported using there guide lines, at the same time the amount above was used to Reduce Pension to Part Pension.
    So any Loan Repayment has Already Been Accessed.
    Centerlink’s Wizardry of How They Use Rules and Payments is unique, no Individual Can Repeat.
    (;-(

    • 0
      0

      Correct! If they loaned him say $50k, the loan is recorded against them from day one as a Financial Asset, as he pays it back it decreases accordingly. If he paid it back in full then it disappears. If he never pays it back it will stay there. They would be better off calling it a gift, at least it will drop off after 5 years.


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