Question

Your client is a parent who lent $40,000 to her son to provide a short-term housing loan. The agreement is that the son will repay $50,000 at the end of five years. Reconsider this question in light of the following facts. The loan was made to the son without any formal agreement and without any security provided for the sum lent. In addition, the client (the mother) has informed you that she told her son that he need not pay interest. However, the son repaid the full amount after two years and included in his payment an additional amount which was equal to 5% pa on the amount borrowed. Only one cheque was presented for the total amount.

Discuss the effect on the assessable income of the parent.

Answer 1

If your client is a parent who lent $40,000 to her son to provide a short-term housing loan and the agreement is that the son will repay $50,000 at the end of five years, but the loan was made to the son without any formal agreement and without any security provided for the sum lent and the son repaid the full amount after two years and included in his payment an additional amount which was equal to 5% on the amount borrowed with only one cheque presented for the total amount, then the assessable income of the parent will not be affected, because that 5% additional amount cannot be counted as income, which should be assessable.