R1 000 000 loan from a friend

[Messugga]

Sorry, I didn't mean to only respond to you.
I was responding to the ppl in the thread as a whole that for some reason couldn't understand what I was saying.

I still don't understand what you're saying... The guy is willing to give OP R1mil on a zero-interest loan basis. OP then wants to use that R1mil to pay partially for a property (be that for transfer duties or whatever). I'm not sure what him or OP paying transfer duties has to do with anything?

 

[Venomous]

Sorry, I didn't mean to only respond to you.
I was responding to the ppl in the thread as a whole that for some reason couldn't understand what I was saying.

No stress. I think there is much the OP has to learn about buying property, and the costs. And others too.

 

[The_Unbeliever]

Wish I could get that kind of money to buy something once-off...


*sigh*

 

[maumau]

The exact opposite's happening here.

A family member wanted to borrow R1M from a family trust interest free for 5 years. Her idea was to pay it into her bond thereby bringing down the capital and interest. She proposed paying the loan back as a lump sum after 5 years.

I vetoed the idea (very unpopular) because where would she get R1M suddenly 5 years from now, alternatively if she had agreed to repay the loan from day one, why not just pay extra into her bond every month, which would achieve the same saving for her.

My point is how do you intend paying it back even without interest?

Bad idea :-(

 

[Other Pineapple Smurf]

I am aware of all manner of mechanisms by property developers but am thinking specifically of situations outside of sectional title but am simply concerned as to laws relating to alienation of land. Not sure it's quite accurate to say it is an option for most people.

With most places being in the R500-R600K mark for first time buyers with families, for many this is really their only option. I busted my balls to be able to afford my cheap family home and I personally earn above the average household income in Cape Town.

Its just sad how unreachable owning a home is in this country for the "middle" class who earn too much to qualify for RDP housing or housing assistance.

 

[Stefanmuller]

AFAIK the loan terms should be specified in a written agreement wrt the term and repayment terms. It cant be an indefinite term with no repayment terms else it would boil down to a R1m donation.

There might be a deemed donation on the difference between zero interest and market related interest especially if it is to a connected person (close family member). Will check up on that.

Donations tax though is very much one of the few "pay because you are honest" type of taxes. Very difficult for SARS to pick up on but of course law is law.

 

[MR.C]

Sounds like your fried is banging your SO

Remember "Indecent Proposal"? first thing that went through my mind, with the Sade soundtrack.

 

[Stefanmuller]

A donation is only applicable where someone gratuitously offered property to someone else for inadequate consideration or waived a right to property or income to them. Thus one has to look in the case of an interest free loan whether the person had a right to interest which he now waived. For this one has to look at the loan agreement. If it states interest at X amount, then waiving of this interest constitutes a donation. If the contract stipulates zero interest, then there is no donation. One can argue that someone offering money now only to receive the exact amount sometime in future, is waiving inherent value in terms of the time value of money at market rates. By having a fixed term the exact loss/waiver can be calculated, but if the loan is made payable on demand, the waived interest is impossible to be computed or at least difficult to prove. Therefore one should make the loan to be payable on demand. Currently SARS does notview such loans as donations. The reason for the loan is also important.

 

[Fudzy]

I wouldn't want a million hanging over a friendship.

 

[Electric]

I still don't understand what you're saying... The guy is willing to give OP R1mil on a zero-interest loan basis. OP then wants to use that R1mil to pay partially for a property (be that for transfer duties or whatever). I'm not sure what him or OP paying transfer duties has to do with anything?

Favors will be expected, knee pads will be purchased.

 

[Napalm2880]

No stress. I think there is much the OP has to learn about buying property, and the costs. And others too.

It's been a steep learning curve!

Wish I could get that kind of money to buy something once-off...

It's really a once in a lifetime opportunity I've been given. The guy is really generous and has done the same for his 3 sons.

A donation is only applicable where someone gratuitously offered property to someone else for inadequate consideration or waived a right to property or income to them. Thus one has to look in the case of an interest free loan whether the person had a right to interest which he now waived. For this one has to look at the loan agreement. If it states interest at X amount, then waiving of this interest constitutes a donation. If the contract stipulates zero interest, then there is no donation. One can argue that someone offering money now only to receive the exact amount sometime in future, is waiving inherent value in terms of the time value of money at market rates. By having a fixed term the exact loss/waiver can be calculated, but if the loan is made payable on demand, the waived interest is impossible to be computed or at least difficult to prove. Therefore one should make the loan to be payable on demand. Currently SARS does not view such loans as donations. The reason for the loan is also important.

That is very helpful. Thank you.

 

[Legosa]

You are receiving a interest free loan, therefore the tax man (SARS) is going to want something in return. Repo rate is 5.5% at the moment so you will need to add R51 267 (interest that would have been earned in a year at 5.5%) to your taxable earnings when you do you tax returns (assuming you have had the loan for a full year and made no payments).