Lending Money to Friends: 2026 Australian Guide

By The Chipkie Team, Personal Finance Editorial Team  ·  Last updated 25 September 2026

Few things put a friendship under strain faster than an unpaid debt. Lending money to friends is something most Australians do at some point — covering a mate’s bond, helping with a car repair, floating someone between jobs — and it usually starts with the best intentions and the vaguest terms. Then the repayments slow, nobody wants to raise it at the pub, and a $5,000 favour quietly becomes a grievance. The good news: a short written agreement removes almost all of that risk, and it takes less time than the conversation you’ve been avoiding.

Here’s how private loans between mates actually work in Australia in 2026 — the tax position, the Centrelink traps, the mortgage rules that catch people out, and what to do when the money doesn’t come back.

Key Takeaways

• Australia has no gift tax and no inheritance tax, so neither party pays tax simply for transferring money — but any interest you charge is assessable income you must declare to the ATO.
• A private loan between friends is a legally enforceable contract even without paperwork; the problem is proving the terms, which is why a signed written agreement matters.
• Centrelink’s gifting rules allow $10,000 per financial year and $30,000 over five financial years before the excess counts as a deprived asset for five years — relevant if you receive a means-tested payment.
• If your friend is using the money toward a home deposit, lenders treat a loan very differently from a gift, and signing a gift letter for money you expect back is mortgage fraud.
• Limitation periods apply to debt recovery — leave it too long and your right to sue can expire entirely.

Should you lend the money at all, or just give it?

Ask yourself one question before transferring a cent: if this money never comes back, will the friendship survive? If the answer is no, don’t lend it. If the amount is small and you’d be relaxed about it, consider calling it a gift outright — a clean gift ends the matter, while an unspoken loan lingers for years.

Where a loan genuinely is the right call, weigh these factors honestly:

• Can you afford to lose it? Never lend money you’ll need before the agreed repayment date.
• Why do they need it? A one-off shortfall is very different from a pattern of chronic overspending.
• Is a bank a better option? If a licensed lender has declined them, ask yourself why — though ASIC’s warnings about the dangers of payday lending are a reminder that a fair loan from a friend can be far better than the alternative.
• What does your partner think? If the money is jointly held, the decision is joint.

What are the tax and Centrelink rules for money between friends?

There is no gift tax or inheritance tax in Australia, so transferring money to a friend triggers no tax event by itself. If you charge interest, that interest is assessable income and must be declared in your tax return. The borrower generally cannot deduct the interest unless the borrowed funds are used to produce assessable income.

Three points most articles miss:

• Interest is optional, but consistency isn’t. An interest-free loan is perfectly legal. If you do charge interest, keep records — the Australian Taxation Office expects it declared, and our experience is that informal lenders routinely forget. Our guide to what interest to charge when lending money walks through fair rates.
• Centrelink treats forgiven loans as gifts. If you receive the Age Pension or another means-tested payment, Services Australia allows gifting of $10,000 per financial year, capped at $30,000 across five financial years. Anything above that is assessed as a deprived asset for five years. Critically, if you lend money and later forgive the debt, the forgiven amount is treated as a gift from that date. This is a social security rule, not a tax rule.
• Division 7A only bites where a company is involved. If the money comes from your own private company rather than your personal savings, a loan to a shareholder or associate can be deemed an unfranked dividend. Ordinary person-to-person loans are unaffected. See our explainer on the tax implications of lending and borrowing between friends and family.

One more nuance: a one-off personal loan to a mate sits outside the National Consumer Credit Protection Act 2009 because you’re not in the business of providing credit. Start lending at interest to multiple people regularly and you may stray into needing an Australian Credit Licence — a line worth respecting.

What should an informal loan between mates actually put in writing?

A handshake deal is still a contract, but courts decide on evidence, not memory. A written agreement converts a vague understanding into enforceable terms, and it removes the single biggest source of conflict: two people genuinely remembering different deals.

At a minimum, record:

1. The parties and the exact amount, with the date the funds were transferred.
2. Whether it is a loan or a gift — stated explicitly, in one unambiguous sentence.
3. Repayment terms: lump sum by a fixed date, or scheduled instalments with amounts and frequency.
4. Interest, or a clear statement that the loan is interest-free.
5. What happens on default: grace period, notice requirements, whether the balance becomes immediately payable.
6. Hardship and variation: how repayments can be paused or renegotiated in writing.
7. What happens if someone dies — an unpaid loan is an asset of your estate, and without paperwork your executor may never recover it.
8. Signatures and date, ideally witnessed.

What if your friend is using the money for a home deposit?

This is where informal arrangements fall apart. Lenders do not just ask whether a borrower can service the loan — they interrogate the source of the deposit. Money you lend a friend is a liability that must be disclosed, and it will be assessed as debt, reducing their borrowing capacity and potentially sinking the application.

Australian lenders typically require:

• A gift letter or statutory declaration confirming the funds are a genuine gift and are not repayable.
• Evidence the funds are genuinely saved or seasoned — usually held in the borrower’s account for a period before settlement.
• Full disclosure of any loan, which is then counted in servicing calculations.

Be blunt with your friend about this: a statutory declaration stating money is a non-repayable gift, when both of you have agreed it will be repaid, is false. Making a false statutory declaration is a criminal offence, and giving a lender false information to obtain credit is fraud. Loan approval can be withdrawn, the facility called in, and both parties exposed. If the money is a gift, gift it and let it go. If it’s a loan, document it and let the lender assess it properly — a structure built on a false declaration will be refused outright if discovered.

How do you get money back from a friend who isn’t paying?

Start with a calm, direct conversation and a written summary of what was agreed. Most non-payment comes from embarrassment and drift, not dishonesty. If that fails, escalate in clear steps — and act promptly, because limitation periods for simple contract debts eventually extinguish your right to sue.

1. Talk first. Ask what they can realistically pay, and offer a revised schedule in writing.
2. Send a written reminder restating the amount, the original terms and a payment date.
3. Issue a formal letter of demand, giving a deadline and stating you’ll pursue recovery.
4. Apply to your state’s civil tribunal or small claims court — in most jurisdictions you can lodge a minor debt claim yourself, without a lawyer.
5. Enforce the judgment if you win, via garnishee or an examination of the debtor’s finances.

Check the limitation period in your state or territory’s Limitation Act before you delay — the clock generally starts from the date repayment fell due. For more on the practical side, see our guide on what to do when you lend someone money and they don’t pay you back.

Is a verbal loan agreement legally binding in Australia?

Yes. A verbal agreement to lend and repay money is a binding contract. The difficulty is evidentiary — without documents, a court weighs competing recollections. Bank transfer records, text messages and emails all help, but a signed written agreement is vastly stronger and far cheaper to enforce.

Do I have to charge interest when lending money to friends?

No. Interest-free loans between individuals are entirely legal in Australia, and there is no minimum rate you must apply. If you do charge interest, declare it as income to the ATO. Keep the rate reasonable and documented so the arrangement isn’t later mistaken for a gift.

Does lending money to a friend affect my Age Pension?

A loan remains your asset and is assessed under the assets and income tests. If you forgive the debt, Services Australia treats it as a gift, allowing $10,000 per financial year and $30,000 over five financial years before the excess is counted as a deprived asset for five years.

Where can I get free guidance before lending?

ASIC’s MoneySmart offers independent, free guidance on loans, budgeting and debt. For complaints about a licensed credit provider, the Australian Financial Complaints Authority can help — though it has no jurisdiction over private loans between individuals.

What’s the simplest way to protect the friendship?

Write it down. Every dispute we see over money between mates traces back to the same root cause: two people who never agreed, in writing, what the deal actually was. A clear document protects the borrower as much as the lender.

If you’re ready to help a friend without gambling the friendship, create a legally sound loan agreement with Chipkie in minutes — set the amount, the repayment schedule and any interest, then sign digitally. Ten minutes of paperwork today is worth years of awkward silence avoided.

Disclaimer: The information provided in this article is for general informational purposes only and does not constitute financial, legal, or tax advice. Australian laws and lending criteria vary by state and territory and may change. Always consult a licensed financial adviser, solicitor, or conveyancer before entering into any financial arrangement or property purchase with another party.