Is It a Gift or Loan?: Part 1

January 17, 2023


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November 30, 2023

A very common issue that arises in the context of family financial arrangements is whether a payment from one person to another was a gift or a loan, with the obvious ramification being: does the money need to be repaid?

A gift is as a voluntary transfer of property to another made gratuitously and without consideration. The essential prerequisites are:

  1. capacity of the donor;
  2. intention of the donor to make the gift;
  3. delivery or transfer to or for the done; and
  4. acceptance of the gift by the done.

The burden of proof is on the plaintiff to establish that the money was lent rather than given (Heydon v Perpetual Executors Trustees & Agency Co (WA) Ltd (1930) 45 CLR 111). The critical issue in many cases is the intention of the plaintiffs to make the gift; the evidence of the parties’ intention is almost always what the Court will rely on to determine the case.

Presumption of advancement

Where the relationship between donor and donee is such that an obligation, either natural or assumed, on the part of the donor to provide for the done can be inferred, an intention to give may be presumed (Murless v Franklin (1818) 1 Swan 13 at 17; 36 ER 278 at 280 per Lord Eldon).

The presumption is a presumption of fact, not law (Jones v Padavatton [1969] 2 All ER, 617 per Salmon LJ). The Supreme, District, Local and Federal Courts all have jurisdiction to apply the presumption (see for example Wexley v Alexander [2004] NSWLC 1).

Where the presumption applies, it operates to prevent legal relations from arising because the relationship between the relevant parties provides a reason against presuming an intention to do so. The presumption operates on the hypothesis that, because a certain relationship exists between two parties, a benefit provided by one party to the other at the costs of the first was intended to be provided by way of “advancement”; absent evidence to the contrary, the relationship supplies a reason for why a gift was intended (see Commissioner of Taxation v Bosanac (No 7) [2021] FCAFC 158, at [3]).

The Full Federal Court in Bosanac applied the presumption of advancement in a matter where the respondent asserted an interest in a property pursuant to a resulting trust. However, the principles are the same for cases where the defendant is asserting that moneys paid by the plaintiffs were a gift, not a loan.

This presumption of advancement has been applied where the person in whose name a purchase is made, or a person for whose benefit a payment is made, is the child of the donor, or a person to whom the donor stands in loco parentis (Davies v National Trustees, Executors & Agency Co of Australasia Ltd [1912] VLR 397 at 401 per Cussen J; Cox v Bennett (1870) 18 WR 519; Nelson v Nelson (1995) 184 CLR 538).

Presumption rebutted

The presumption of advancement can only be rebutted by evidence that at the time of transfer no gift was intended by the transferor (Martin v Martin (1959) 110 CLR 297). Evidence as to the legal and factual relationship between the parties should also be considered (Calverly v Green (1984) 155 CLR 242 at 270 per Deane J).

Evidence of conduct subsequent to the transfer is not admissible unless it occurs so immediately after the transfer as to constitute part of the transaction (Calverley v Green (1984) 155 CLR 242 at 252 per Gibbs CJ, at 262 per Mason and Brennan JJ and 269-70 per Deane J).

However, evidence of declarations made subsequent to the transfer that are admissions can be used to rebut the presumption (Trustees of the Property of Cummins (A Bankrupt) v Cummins [2006] HCA 6 at [65]).

What should I do?

The most important step you can take to prevent a future dispute is to properly document loans and gifts. Our commercial and transaction lawyers can assist with drafting deeds of loan and gifts.

In the event you find yourself in a dispute about whether a payment was a gift or a loan, contact our commercial litigation lawyers who can quickly advise and help plan the way forward. There are limitation periods when seeking to recover loans so it is important to act quickly.