Understanding Borrowed Money vs Gift Tax in Financial Transactions between Parents and Children

In the case of a financial transaction between parents and children, if it is recognized as a borrowed money rather than a gift, there is no need to pay gift tax.

According to the ‘Inheritance and Gift Tax Common Sense’ published by the National Tax Service on the 28th, it is not easy to recognize financial transactions between parents and children as borrowings rather than gifts. If it is recognized as a loan, you do not have to pay gift tax.

However, if you look at a number of precedents, when money is exchanged between parents and children, it must have the same form and content as a normal IOU exchanged between third parties, and in fact, it is considered a loan rather than a gift only when the child pays interest according to the contents of the IOU. . The intention of this precedent is that even if there is an IOU, it cannot be regarded as a loan if it has only the appearance of borrowing to avoid gift tax.

Therefore, the National Tax Service explained that if the form and contents of the IOU are unusual, or if only the IOU is used and interest is not paid, gift tax may be imposed as it is regarded as a gift rather than a borrowed money.

The National Tax Service also emphasized that if it is recognized as a loan, gift tax is not levied immediately, but the National Tax Service manages the details of the borrowing certificate every year to check whether interest is paid or principal is repaid.

If, unlike the contents of the IOU, if the contracted interest is not paid or the principal is not repaid at maturity, gift tax may be imposed as it is considered not to have been borrowed money from the beginning.

In addition, the National Tax Service said, “If parents die during the repayment period and cannot repay the principal, the principal is included in the inherited property, so if you make a mistake, your child may have to pay interest as well as inheritance tax.” It can get bigger, so be careful.”

[저작권자 @머니투데이, 무단전재 및 재배포 금지]