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Loaning a friend a big sum of money for a couple of months and getting that same amount back.?

One for the finance / legal eagles..  I've offered to loan a friend a sizable sum of money to buy a sizable asset which they will repay on the sale of their existing sizable asset.  

Other than the trust factor and the 'she'll be rite mate', which I have faith in, is the ATO going to creep up on me from behind and say 'Oi, what's going on here then.'  The friend can't afford said asset until existing asset is sold, but said asset needs to be bought pronto.  Officially bridging the finance gap isn't an option, because the gap is too big for old mate to bridge.!  I intend to get an agreement drawn up, but I suppose my question is, if $X leaves my account and gets deposited into their account, and a while later that same amount comes back to my account, is there going to be a problem with the powers that be..?

There will be no money made in this transaction - is basically a back and forth deal - though I reserve the right to a 'carton of beer' as form of compensation for loss of interest for the interim.

 

Cheers Guru's..!

 

 

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Couple of issues:

Where is the money coming from?

  • Your super, company, personal account? This will affect how the in/out transaction is viewed.
  • Make sure it’s not viewed as income when returned.

My limited 2 bobs worth.

Suggest you run it by your accountant first.

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I once lent a good mate $30k. It took 3.5 years to get it back (and me being extremely forceful). While I didn’t need the money it starts to drive a wedge.

I’d draw it up like any other loan, with interest kicking in at some point, say 12 months.

From the experience I had I’ll never lend anyone money again and I suspect the money you’re talking about is way more than $30k.

Be careful.

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41 minutes ago, GC9911 said:

Couple of issues:

Where is the money coming from?

 

From an everyday acount...

 

20 minutes ago, sleazius said:

From the experience I had I’ll never lend anyone money again and I suspect the money you’re talking about is way more than $30k.

Be careful.

Yep.  Way more.

The trust issues isn't an issue - its just the questions that may be asked..  Not that in any way is this a shonky deal.

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I have little idea about the tax issue's. 

You seem very confident about trustworthiness which is outstanding in today's world. Very nice for you to have.

However if the trusted party was to be injured or worse you could be dealing with a third party to recover the money. You will then likely need a contract. If say his/her family have a drawn out affair with the payment eg contest, you could be waiting quite some time. 

I'd ask an accountant and solicitor. I know some ppl would consider this a breach of trust but it shows confidence in your friend just not the variables. 

 

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I don't see any issues with any authorities ... it's your money to do with as you please.

If you are concerned with transferring such a large amount, get a bank cheque ... money leaves your account (no justification needed) and get a bank cheque for the same amount in return (still no justification needed) ... 

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55 minutes ago, WOKA said:

From an everyday acount...

 

Yep.  Way more.

The trust issues isn't an issue - its just the questions that may be asked..  Not that in any way is this a shonky deal.

No tax implications at all if you can account for it already. If you lend it to him document it as much as possible and with an independent witness and video it all as well.    BUT    Best way to lose a friend(s) and a sizeable sum. Way more than even chance it goes sour and way less than even chance you can get it back if it does go sour ...... I've seen this exact scenario go so sour that within a year it destroyed and split 4 ways an entire friendship group of families and led to two separations and big time violence ...

You're not a bank mate, remember that ....it's stood me well over all the years and I haven't lost any $$$ or mates. So so many ways it can go belly up and often through no one's real fault.

I don't mean to offend and you may be best mates but I'm just sayin' Woka ...

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@WOKA, Wot Troubleshooter said.  No Tax issues.  However, I would still have a legal agreement drawn up, even if it is your best mate.  Doesn't have to be complex, just cover the important items, include an interest provision that kicks in after a particular period at your option.  Look to include some form of security - eg if you're lending him the money to buy a GT3RS, make sure you can get your interest in the car registered on the PPSR and perhaps over the asset that is being sold if possible.  Remember, it mightn't be something he does that brings things unstuck, it may well be something that someone else does to him....  If he / she does end up paying you some interest, that would be subject to tax.

Peter the beancounter

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43 minutes ago, Troubleshooter said:

No tax implications at all if you can account for it already. If you lend it to him document it as much as possible and with an independent witness and video it all as well.    BUT    Best way to lose a friend(s) and a sizeable sum. Way more than even chance it goes sour and way less than even chance you can get it back if it does go sour ...... I've seen this exact scenario go so sour that within a year it destroyed and split 4 ways an entire friendship group of families and led to two separations and big time violence ...

You're not a bank mate, remember that ....it's stood me well over all the years and I haven't lost any $$$ or mates. So so many ways it can go belly up and often through no one's real fault.

I don't mean to offend and you may be best mates but I'm just sayin' Woka ...

Reminds me of a little plaque my dad had hanging on his door when I was a child ... he's a debt collector.

You ask for credit, I no give, you get mad ... 

I give credit, you no pay, I get mad ...

Better that you get mad!! ... 😅

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@WOKA great advice above. No tax issues on a paper loan between parties but there can be grief.

Been in this situation with a smaller amount and unfortunate to say, that money can quickly become an issue between family and friends.

as advised, document it, have some form of repayment period ie whole amount or instalments, if it exceeds a period there is a specific interest rate and repayment schedule documented, and independently witnessed. Go to one of the JP’s at the local library to witness it. 

While it all sounds easy and uncomplicated, the challenge is in today’s market on big assets.  They are easy to buy, selling for the price you want is a challenge which may impact how long your money is out for. I just sold my house I can relate to current market conditions, price expectation verse reality and low ballers 🙄.

BTW, we need to have a seperate discussion on why you have a considerable sum sitting in an at call account 😡

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Yeah you need to be securing that loan.  If it’s for an asset you need to have security against that asset.

if it’s for a car ask yourself how are you going to take back the car when no repayment is forthcoming? How are you going to be certain the car is insured so a total loss is not your total loss.

friends and family loans happen all the time and work out well - but only when it’s super clear to everyone what the ‘ok this is over’ scenarios look like.  Is your friend married?  What happens if the wife decides to ‘find herself’ with a young bartender and takes said asset in a separation?   What happens if friend gets sick and can’t work and can’t pay?  Etc.  just agree on how the whole thing can get unwound if you can’t recover the cash.  That way everyone is on the same page.

i wouldn’t bother with a lawyer as you might as well spend the money on a good steak restaurant - if someone isn’t going to pay a lawyer is little help except making you poorer.  Just write it up in sensible language and get everyone - including any wives / girlfriends to agree.

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1 hour ago, firstone said:

Two stamp duties. 

Small cost for the mate to secure the purchase, in lieu of interest not being a component of the loan

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  I'm useless with money, yet just my opinion here

As much as you may have a best mate, it can all go pear shaped even when you implement some sort of legal agreement to ensure you get your money back, as some take offence that they might not be trustworthy enough to borrow the cash. I did that with a mate that needed a couple of grand, yet got the sooks on and I haven't seen him since. Money between friends is also why I'm no longer a musician with another mate, but that's another story

You're obviously in the position to be able to help a friend out, and in this day and age it is more than admirable, yet mate, just be bloody careful

 

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I lent a sizable amount of cash to a good friend for 2 months while she waited for her brother to repay a loan to her.  Well guess what - the brother tried to kill his wife, he then committed suicide, and my good friend could never recover her money from the widow as it was never documented (between siblings).  Oh, and the widow really didnt want to hand over a sizeable chunk of cash to the sister of the man who just tried to murder her.   Probably a reasonable response.

But, due to all that, I have had to kiss a large chunk of my savings goodbye. 

And yes, it drove a wedge between her and I for obvious reasons.

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6 hours ago, Coastr said:

you might as well spend the money on a good steak restaurant...

I don’t know you personally, but based on this, I think we would get along pretty well. 

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26 minutes ago, ByronBayChris said:

I lent a sizable amount of cash to a good friend for 2 months while she waited for her brother to repay a loan to her.  Well guess what - the brother tried to kill his wife, he then committed suicide, and my good friend could never recover her money from the widow as it was never documented (between siblings).  Oh, and the widow really didnt want to hand over a sizeable chunk of cash to the sister of the man who just tried to murder her.   Probably a reasonable response.

But, due to all that, I have had to kiss a large chunk of my savings goodbye. 

And yes, it drove a wedge between her and I for obvious reasons.

You run in interesting circles Chris:ph34r:  Cool new avatar mate, (courtesy of the real estate agent huh!)

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On 04/12/2018 at 19:39, WOKA said:

Loaning a friend a big sum of money for a couple of months and getting that same amount back.?

One for the finance / legal eagles..  I've offered to loan a friend a sizable sum of money to buy a sizable asset which they will repay on the sale of their existing sizable asset.  

Other than the trust factor and the 'she'll be rite mate', which I have faith in, is the ATO going to creep up on me from behind and say 'Oi, what's going on here then.'  The friend can't afford said asset until existing asset is sold, but said asset needs to be bought pronto.  Officially bridging the finance gap isn't an option, because the gap is too big for old mate to bridge.!  I intend to get an agreement drawn up, but I suppose my question is, if $X leaves my account and gets deposited into their account, and a while later that same amount comes back to my account, is there going to be a problem with the powers that be..?

There will be no money made in this transaction - is basically a back and forth deal - though I reserve the right to a 'carton of beer' as form of compensation for loss of interest for the interim.

 

Cheers Guru's..!

 

 

Whilst I agree on the no tax liability front, I think you are inviting the ATO in for an audit.  

Ps.  And no offence, but if traditional methods of bridging finance aren’t available, then it sounds like your mate is over stretching himself. 

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Thanks all for the advice - all very much welcomed.  Such is the way of forums and how they work.  A bit of a 'Man's Shed' really.  ;)

From your answers I'm happy that there is no legal requirement for me to declare this loan to the authorities as such, and that it can be dealt with in a seemingly easy and straight forward manner.

I do like the idea of swapping bank cheques for better accountability and I'll most certainly get an agreement drawn up based on all of the advice above, including security over the asset to be purchased (effectively the asset I'm purchasing) and the asset that is being sold meanwhile.. And of course contingency covering all worst case scenarios. If the shit hits the fan, and push comes to shove I'm happy to take on this asset as its a tidy little investment with potential.

And yes, @Tips, the discussion is needed, but when people start talking 'supertalk' etc, stocks and shit, my eyes glaze over.  I'm just a simple bloke who likes the security of material, real world investments :)  Unless there is a guarantee.  Haha, yeah rite.

 

Cheers.

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I would be getting an accountant to draw up the documentation or legal adviser to do so . Nothing to do with contracts but mainly outlining the reason , amount and there is no financial gain being made by yourself.

My understanding is that the ATO are really looking into any amount changed between two parties over 10k . It is also common practice for banks to notify in some instances large amounts of money leaving accounts . 

This is all info that i have been told and best to be as clear and open with the people you pay to protect your money ( accountants and lawyers ) and have it on lock.

Paperwork and a paper trial is always great to have down the track. 

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1 hour ago, WOKA said:

when people start talking 'supertalk' etc, stocks and shit, my eyes glaze over.  I'm just a simple bloke who likes the security of material, real world investments :)

All good @WOKA no need to get technical on strategies but there are some accounts that pay better than 0.01% and not at risk. 

When u gets the cash back we can start another conversation with the brains trust on PFA . Good luck with getting ur mate sorted and your cash investment protected.

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2 hours ago, WOKA said:

 

 If the shit hits the fan, and push comes to shove I'm happy to take on this asset as its a tidy little investment with potential.

 

WOKA, re the above, wouldn't it be simpler for you to purchase the asset on your friend's behalf on the (documented) understanding that he is able to purchase it from you at the original price paid by you, plus expenses?

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