Lending Money to Family Members: How to Avoid Common Pitfalls
- Symmetry Accounting & Tax Pty Ltd
- Oct 5
- 3 min read
When financial pressures arise—whether due to rising living costs or unexpected challenges—many people turn to family for support. While lending money to loved ones can come from the best of intentions, it can also create significant tension if not managed properly. At Symmetry Accounting & Tax Pty Ltd, we often see cases where a lack of planning leads to disputes, misunderstandings, or even financial loss.
The good news? With the right approach, you can protect your finances, preserve family harmony, and provide the support your loved ones need.
Is It a Gift or a Loan?
The first and most important question is: what kind of help are you offering?
A loan must be repaid.
A gift does not.
Although this seems straightforward, miscommunication is common. What you think is a loan, the recipient might assume is a gift. To avoid this, always put your intentions in writing.
If it’s a loan, outline the details in a simple loan agreement, including:
The loan amount and its purpose.
The repayment terms and timeframe.
Whether interest will be charged.
Any security provided against the loan.
Even if you intend the money as a gift, it’s still wise to record this. Without documentation, disagreements may arise later—particularly if other family members question the nature of the financial support after you pass away.
Who Exactly Are You Lending To?
It’s essential to clarify who is receiving the funds and for what purpose.
Are you:
Supporting a family member’s business venture?
Helping your child (and possibly their spouse) purchase a home?
Failing to formally document the arrangement can cause problems. For example, money assumed to be a gift might end up with creditors or an ex-spouse or create conflict during estate administration.
Protecting Your Interests: Registering Security
In Australia, there are ways to secure your loan legally.
Business loans: You can register a security interest over non-land assets using the Personal Property Securities Register (PPSR). This ensures you’re recognised as a secured creditor if the business becomes insolvent.
Home loans: You may register a mortgage over the property with the state’s land titles office. Alternatively, you could lodge a caveat but be aware this does not provide the same level of protection as a registered mortgage.
Because these steps must be done carefully to ensure enforceability, it’s best to seek professional assistance before proceeding.
Other Important Considerations
1. Centrelink Reporting
If you receive Centrelink benefits (such as the Age Pension), you must report loans made to family members. Loans are treated as assets, while gifts will eventually be excluded—but only after a five-year waiting period. This timeline is important when planning your financial strategy.
2. Taxation Implications
If you earn interest income from a loan, it must be declared in your tax return. Even when dealing with family, the ATO views this as taxable income. On the other hand, if you don’t charge interest, be sure to clearly record the arrangement as a loan; otherwise, it will likely be considered a gift.
3. Time Limits on Repayment
Each state has a limitation period for enforcing debt repayment through civil claims. For instance, in New South Wales and South Australia, this period is six years. If the timeframe lapses, the debt may no longer be enforceable unless you refresh the claim with a formal notice.
Final Thoughts
Lending to family members can be a compassionate way to help, but without structure, it risks damaging both your finances and your relationships. By documenting arrangements clearly, considering tax and Centrelink implications, and protecting your position with security measures, you can avoid future complications.
At Symmetry Accounting & Tax Pty Ltd, we provide tailored support in accounting, taxation, and business advisory. We can guide you through the financial and compliance considerations of lending to family and help you make informed decisions for the future.
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