How a Parent forgives a child debt
Lend a child some money? But now you want to formally forgive the debt. A Parent forgives a child debt by building a Deed of Debt Forgiveness. In the Deed of Debt Forgiveness, you forgive the debt for ‘love and affection’. The debt has gone. The Borrower (your child) no longer owes the lender (you) any money.
Forgiving a child debt
You loan your daughter $30,000 each of the 5 years she is at University. She owes you $150,000. You are happy with her hard work and want to forgive the debt. This has CGT, income tax and stamp duty implications. Instead, you forgive the debt by building this Deed of Debt Forgiveness. There are now no tax issues when forgiving the debt.
Issues when you forgive a debt for ‘love and affection’:
* is a deduction for the release of debt is available?
* do the commercial debt forgiveness penalties apply?
* any FBT?
The answer to all questions is ‘no’. Press the Sample button above to read our letter of advice.
Does the Deed of Debt Forgiveness also work for other relationships?
The Deed of Debt Forgiveness is not just when a parent forgives a child debt. There is no tax consequences because you are forgiving the debt for ‘love and affection’. The Deed of Debt Forgiveness also works when a:
- company forgives another company debt (yes, you can have ‘love and affection’ between two companies)
- beneficiary forgives a debt owed by the Family Trust (Unpaid Present Entitlements – UPE)
- forgiving a debt from your ex-spouse
For more legal advice telephone us. We are a law firm. We can help you answer the questions.
Adjunct Professor, Dr Brett Davies, CTA, AIAMA, BJuris, LLB, LLM, MBA, SJD
Legal Consolidated Barristers and Solicitors
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