In New Zealand, familial loans are generally tax-exempt, but a below-market interest rate may trigger tax on imputed interest. Abolished gift duty may resurface with loan changes. Thorough documentation is essential, and seeking professional advice ensures compliance amid evolving tax laws.
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“My family has offered to loan us some money at a very attractive rate for both parties. Would the payments be considered taxable income for the lender?”
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In New Zealand, loans between family members are generally not considered taxable income for either the lender or the borrower. However, there are some factors to consider:
Interest Rate:
If the loan has an interest rate that is significantly below the market rate, tax authorities may view the difference between the actual interest charged and the market rate as a “gift” or income. In such cases, the lender might be required to pay tax on the imputed interest.
Gift Duty (if applicable):
New Zealand abolished gift duty in 2011, so generally, gifts are not subject to gift duty. However, if there are changes to the loan agreement or if the loan is forgiven, it could have gift duty implications.
Documentation:
It’s crucial to have a well-documented loan agreement that outlines the terms of the loan, including the principal amount, interest rate, and repayment terms. This documentation can be useful in case of any questions from tax authorities.
Professional Advice:
Given the complexities of tax laws and potential implications, it’s advisable to seek advice from a tax professional or financial advisor. They can provide personalised guidance based on the specifics of your situation and ensure compliance with current tax regulations.
Keep in mind that tax laws can change, so it’s essential to consult with a professional who has up-to-date knowledge of the New Zealand tax code. They can provide the most accurate and relevant advice based on the current legal framework.
Hope this helps.
Regards, Clive Fernandes (Financial Adviser)
Director – National Capital
Disclosure: I am the director of National Capital, a KiwiSaver advice firm. The views expressed in this article are the views of the author. The information provided is of a general nature and is not intended to be personalised financial advice. You may seek appropriate financial advice from a Financial Adviser to suit your individual circumstances or contact National Capital.
