Answer to Question #76753 in Finance for sarishma

Question

Your client is a parent who lent $40,000 to her son to provide a
short-term housing loan. The agreement is that the son will repay
$50,000 at the end of five years.
Reconsider this question in light of the following facts. The loan was
made to the son without any formal agreement and without any
security provided for the sum lent. In addition, the client (the
mother) has informed you that she told her son that he need not
pay interest. However, the son repaid the full amount after two
years and included in his payment an additional amount which was
equal to 5% pa on the amount borrowed. Only one cheque was
presented for the total amount.
Requirement:
Discuss the effect on the assessable income of the parent

Answer 1

Assessable income is income that can be taxed, provided you earn enough to exceed your tax-free threshold.
In this case assessable income is higher than under the agreement, because the son paid it 3 years earlier with additional 5 percent of the amount borrowed.