IOUs have long been a staple of Australian life, from mates lending each other cash for a night out to small businesses patching over cash flow gaps. But as the cost of living crunches tighter and regulations tighten around financial transactions, it’s never been more important to understand where IOUs stand in 2025. Whether you’re lending or borrowing, here’s the lowdown on IOUs in today’s Australia.
What Is an IOU and Why Do Australians Use Them?
An IOU (short for “I owe you”) is a simple, informal written acknowledgment of debt. Unlike formal loan agreements, IOUs are usually scribbled on a napkin, texted, or exchanged over email. They don’t always specify repayment terms or interest, making them popular for:
- Lending small amounts to friends or family
- Covering business expenses between partners or sole traders
- Short-term fixes for unexpected costs
In 2025, with interest rates still above their pre-pandemic lows and household budgets under pressure, informal lending has seen a resurgence. But many Australians don’t realise that an IOU is more than just a handshake—it can carry real legal and financial consequences.
Are IOUs Legally Binding in 2025?
The legal status of an IOU in Australia hasn’t changed dramatically, but there have been subtle shifts with recent court cases and updates to digital record-keeping laws. In general, an IOU can be enforceable if it:
- Clearly identifies the lender and borrower
- Specifies the amount owed
- Is signed (physically or digitally) by the borrower
Recent 2025 updates to the Electronic Transactions Act have clarified that digital IOUs—such as those sent via email or SMS—are admissible in court, provided they demonstrate clear intent and agreement. However, informal IOUs without witness signatures or detailed terms (like repayment dates or interest) can be harder to enforce, especially for amounts above $5,000.
Key developments in 2025 include:
- Digital IOUs are now routinely accepted in small claims courts, provided there’s proof of agreement and digital signature or acknowledgment.
- ASIC has issued new guidance on peer-to-peer lending and informal debts, urging Australians to document repayment terms and consider using digital platforms to track informal loans.
Risks and Best Practices for Using IOUs
While IOUs can be convenient, they come with risks—both personal and financial:
- Relationship Strain: Money disputes are a leading cause of rifts between friends and family.
- Enforcement Headaches: Even with a written IOU, chasing repayment can be stressful and costly.
- Tax Implications: Unrecorded or large IOUs can draw scrutiny from the ATO, particularly if they look like disguised business loans or gifts.
- Interest and Fees: Charging interest on an IOU may require a credit licence under ASIC’s updated 2025 guidelines, particularly for amounts over $10,000 or repeated lending activity.
Smart ways to use IOUs in 2025:
- Use a digital template or app that records both parties’ agreement and timestamps the transaction.
- Include clear repayment terms: how much, by when, and how payment will be made.
- Keep records of repayments to avoid disputes.
- For business IOUs, consider a formal loan agreement to avoid ATO or ASIC issues.
Real-World Examples: IOUs in Action
Case 1: The Mates’ Holiday Loan
When two Sydney friends split travel costs for a group trip, one covers flights on their card. An IOU is written via email for $2,200, specifying repayment within 90 days. When repayment is delayed, the lender successfully enforces the IOU in NSW small claims court, thanks to clear digital records.
Case 2: Business Partners & the Taxman
Two Melbourne sole traders informally lend each other funds for inventory and operations, using handwritten IOUs. When the ATO audits one partner, the lack of clear documentation leads to a tax reassessment. The partners now use a digital lending platform that generates formal IOUs, keeping records for compliance and peace of mind.
What’s Next for IOUs in Australia?
With the federal government’s 2025 review of informal lending underway, more changes may be on the horizon. Expect further guidance on:
- When an IOU becomes a regulated credit contract
- How digital platforms should handle privacy and record-keeping
- Best practices for peer-to-peer lending
For now, the safest move is to treat every IOU as a real financial agreement—get it in writing, be clear on the terms, and keep your records up to date.
