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Gifting or loaning money for a property purchase

Financial Planning  |  20/07/2021  |   5 min read

Australian house prices have gone up by 13.5% over the previous 12 months.  

The average price for a home in Melbourne is now $936,000, while the national average is $852,000

Those prices have seen many aspiring homeowners turn to family members to help them get into the market.  

But before you gift or loan any money, there are 5 key things to consider.  

1. Decide what you can afford 

Lending significant amounts of money can have various implications on your finances. You may be forgoing interest, you might not be able to repay other loans, or you may simply miss the safety net that comes with having cash on hand. Helping others is great, but make sure you can afford it, and are comfortable with the size of the loan. 

2. Agree on the terms and conditions 

Make sure everyone is clear about the nature of the loan and how it will be repaid. Setting out clear payment terms and dates helps ensure everyone knows their responsibilities and can be held accountable. 

3. Ask the tough questions 

Understanding a family members capacity to repay a loan is just as important as your ability to finance it. Make sure you understand their situation as far as income, expenses, and the value of the property before agreeing to anything. Just like a bank, you need to ensure they can afford the loan, and are able to repay it. 

4. Get something on paper 

It’s important to get something on paper when dealing with large sums of money. Whether that’s an email, a written statement, or a formal legal agreement is up to you, but having something you can refer to can help avoid disputes down the line. 

5. Consider other family members 

Lending money to one family member can set a precedent that other siblings may also expect. And while you might be able to help one home loan, are you in position to help with additonal loans? Managing the family’s expectations when it comes to loans can be just as important as the actual sums involved. 

Tax and Age Pension implications of gifting money 

Being able to help a family member get on the property ladder is a great position to be in, but there are tax and income issues to consider when gifting, especially if you’re on the Age Pension. 

Services Australia provides a comprehensive list of what counts as gifting, but the most common examples are money towards a home loan, the transfer of an asset such as a car, or the payment of tuition fees for grandchildren.  

Gifting also includes ‘forgiving’ a loan that someone owes you or transferring an asset from one person to another below its market value. 

If you’re currently receiving the Age Pension there are limits on what you can gift in a single year. Whether you’re single or a couple it’s $10,000 in cash or assets in a year, or $30,000 over five years. You’ll also need to notify Centrelink within 14 days of the gift. 

Going over these limits can impact the way your income and assets are assessed by the government, which can affect your Age Pension payments. So, it’s important to speak with a financial planner to understand the implications of gifting any money above the current limits. 

And remember, an initial appointment with an equip financial planner is available to members at no additional charge. 

Speak with a financial planner

Learn more about gifting and your Age Pension payments.

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This information is provided for general information only. It does not take into account your personal objectives, financial situation or needs and should therefore not be taken as personal advice. You should consider whether it is appropriate for you before acting on it and, if necessary, you should seek professional financial advice. Togethr Trustees Pty Ltd ABN 64 006 964 049, AFSL 246383 ("Togethr") is the trustee of the Equipsuper Superannuation Fund ABN 33 813 823 017 ("Equip" or "The Fund"). Past performance is not a reliable indicator of future performance.

Togethr Financial Planning Pty Ltd (“TFP”) (ABN 84 124 491 078, AFSL 455010), trading as Equip Financial Planning, is licensed to provide financial planning services to retail and wholesale clients. TFP is owned by Togethr Holdings Pty Ltd (ABN 11 604 515 791). You can obtain the TFP Financial Services Guide and/or Privacy Statement by contacting our Helpline on 1800 682 626. This is general information only and does not take into account your personal objectives, financial situation or needs and therefore should not be taken as personal advice.

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