Giving a Loan instead of a Gift
If a family member or a friend needs money, you can consider an option of making a loan instead of a gift.
A loan can accompany a promissory note that can have a re-payment schedule attached to it.
You can opt to charge interest for the money loan. The interest can be the same as the bank will charge, more than a bank will charge or less than the bank will charge.
Any interest charged for the loan has to be reported in your income tax return.
When someone has an interest-bearing loan, he is always very careful as to how to spend that money.
If the loan money is for a major purchase like a house or a cottage, you can protect yourself by registering a mortgage against the property for the amount of loan.
It is always a good idea to have the property appraised for which you are giving the loan. The value of the property should be equal or than the value of the loan you are giving plus any other mortgage on the property.
If property is ever to be sold, you should be able to get your money back.
Loans given for the purchase of a car can be protected by registering a security interest against the car. A security interest gives you the right to take the car and sell it if the loan is not paid.
Your lawyer can arrange the mortgage or security interest documentation.
Mansoor Suhail (Mani)
Accountant
MS TAX – BSBA – EA – ICIA – RA
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