Hi everyone.
Like many parents, you might be thinking about how you could use your resources to help your kids. Is there some way I could use my home or other assets to enable my children to buy a home of their own?
They’re your assets, and you have the right to use your assets however you want, but you need to know that there may be bigger implications from your actions than you may have thought. It’s important to understand all the possible impacts on your payments, on your estate, and on your finances, before you make your decisions.
Let’s look in more detail at what it would mean if you enter a guarantor arrangement or are thinking of gifting your kids some assets to help them out.
How can I help with their home loan?
Parents might consider using their position as a property owner to help their children buy through a guarantor home loan.
The moneysmart website explains that a guarantor arrangement is when you use your home as security for another person, giving that person an underlying asset as the base of the loan.
If you’re getting a payment from Services Australia, there’re no implications for your payment just using your home as the underlying security in a guarantor loan. As long as the borrower continues to make all the repayments, the loan arrangement won’t impact the payment you get from us.
You want to make sure your kid won’t skip town because if they fail to meet repayments, as a guarantor you’re now legally required to pay. If you fail to do so, the lender has the legal right to take possession of your home.
And if you make that repayment on the borrower’s behalf, this would be treated by us as a gift.
What happens if I make it a gift?
Gifting money can have implications if you’re getting a government benefit or wish to apply for some in the future. You can choose to give away any amount, but if you exceed the value of the gifting free areas, it could affect your payment.
The value of the gifting free areas are the same if you’re a single person or a couple. They are both: $10,000 in one financial year, and $30,000 over 5 financial years – this can’t exceed $10,000 in a single financial year.
Now, if you’re thinking of selling your property to your child at a discounted price as a way of circumventing this rule, it won’t work. For example, if you own a property worth $780,000. But you sell it to your child for $600,000. We would assess the $180,000 difference as a gift.
Before you make any decisions, consider speaking to Services Australia’s free Financial Information Service about the possible implications on your financial position.
To speak to a FIS Officer, call us on 132 300 and say ‘Financial Information’ when asked for the reason for the call.
Until next time,
Hank Jongen
General Manager
Services Australia
