Loan Fringe Benefits

A loan fringe benefit is a loan made by an employer or associate to an employee or associate at no interest, or at an interest rate lower than the published benchmark rate.

The benchmark interest rate is revised annually.

Note: The devil is in the detail. The information on this page is a summary, and should not be relied upon as the final word in this complex area. Please consult references for essential detailed guidance.

The meaning of “loan” has a widely drawn definition in s136 of FBTAA:

“loan” includes:

(a) an advance of money;

(b) the provision of credit or any other form of financial accommodation;

(c) the payment of an amount for, on account of, on behalf of or at the request of a person where there is an obligation (whether expressed or implied) to repay the amount; and

(d) a transaction (whatever its terms or form) which in substance effects a loan of money.

A  formal or written agreement is not generally required to evidence the existence of a loan for these purposes, and the tax office considers that the following can be considered loan fringe benefits:

  • overpaid salaries being repaid over time (salaries are not a fringe benefit, but time given to repay is – see TD 2008/10)
  • FBT contributions being repaid on an after-tax basis over time
  • a repayable outlay, allowance or advance
  • a loan for a security deposit or bond
  • loans to employees to purchase housing in a remote area.

Taxable value of a loan fringe benefit

The taxable value of a loan fringe benefit is the difference between the interest calculated on a daily balance at the benchmark rate, and the actual interest accrued. No GST enters the calculations.

The Minor Benefit rules (amounts under $300) or the Otherwise Deductible (Reduction in taxable value where interest would have been deductible to employee) rules can be utilised when the respective qualifying conditions are met.

Exempt Loan Fringe Benefits

The following are not considered to be loan fringe benefits:

Money Lending Business

  • For a fixed interest loan with an interest rate equivalent to that offered to the general public, there is no fringe benefit foe the term of the loan. The loan must be documented.
  • A variable interest loan is also exempt if made on an arms-length interest rate at least equal to that offered to the public, determined on a year to year basis.

Deemed Dividends

Loans deemed to be dividends under Div 7A, are generally excluded as fringe benefits.

Employment-related expenses

An advance to an employee for solely for employment-related expenses is not a taxable fringe benefit, provided that:

  • expenses are incurred within 6 months
  • the advance is not substantially in excess of the estimated expenses
  • the employee accounts for the expenses
  • any unspent surplus is repaid

Temporary Advance to cover security deposit

An advance to an employee in order to fund security deposits such as a rental bond, temporary accommodation or utilities is exempt from FBT if repaid within 12 months

Further information:

Australian Taxation Office – Chapter 8 of Fringe benefits tax – a guide for employers.

 

 

 

This page was last modified 2018-12-10