A taxable fringe benefit arises from a debt waiver when a debt owed by an employee or associate to their employer or associate is waived or forgiven.
The meaning of “waive” is considered to be the giving up or abandonment of some right (Banning v Wright (1972) 1 All ER 987)
A debt repaid through a salary sacrifice arrangement is treated as a debt waiver.
To be a taxable fringe benefit, the waiver must have the necessary connection to the employee’s employment. A debt written off as a genuine bad debt will not amount to a debt waiver. In such circumstances evidence of reasonable steps taken to recover the debt and the comparative treatment with non-employee debtors (indicated by company policies and process) would be necessary to show that lack of connection.
A taxable fringe benefit will also not arise in the forgiveness of a private company debt owed by a shareholder/employee or associate, as such forgiveness would be dealt with under rules in Div 7A as a deemed dividend.
A debt that remains unpaid does not give rise to a debt waiver fringe benefit, but will give rise to a loan fringe benefit until repaid or waived.
Taxable value of a debt waiver fringe benefit
The taxable value of the fringe benefit is the amount of the debt waived or released inclusive of any interest.
The fringe benefits tax payable is the grossed-up value of the debt waived multiplied by the FBT rate.
Exemptions
There is no specific exemption circumstances specified for debt waiver fringe benefits, however a minor benefit exemption (less than $300 value) may be applied.
Further information:
Australian Taxation Office – Debt waiver fringe benefits
This page was last modified on 24 August 2017