Loan and debt waiver fringe benefits

What a loan fringe benefit is

If you lend money to an employee at an interest rate below the statutory interest rate, it is a loan fringe benefit. The same applies if you lend money to an employee at no interest.

A loan includes:

• an amount you give an employee on the understanding they will repay you
• a debt an employee owes to you that you don't force them to pay by the due date.

Exempt loans

A loan you make to an employee is exempt from fringe benefits tax (FBT) if:

• you're in the business of lending money, and the interest rate on the loan to the employee is at least equal to the interest you charge on a comparable loan to the public
• the loan is an advance solely for the employee to meet employment-related expenses they will incur within 6 months of the advance
• the loan is an advance, repayable within 12 months, solely for the employee to pay a security deposit on accommodation. The accommodation must be an exempt benefit, or temporary accommodation eligible for a reduced taxable value under the relocation concessions.

What a debt waiver fringe benefit is

If you waive an employee's loan debt (that is, you don't require them to repay it), it is a debt waiver fringe benefit.

For example, if you sell goods to your employee and later tell them they don't have to pay the invoice for the goods, you have provided a debt waiver fringe benefit.

However, it isn't a debt waiver fringe benefit if you write off a debt for reasons unrelated to the employment relationship. In this case it is a genuine bad debt.

What to do if you provide a loan or debt waiver fringe benefit

You need to:

1. work out the  
   • taxable value of the loan fringe benefit
   • taxable value of the debt waiver fringe benefit
2. keep the appropriate records
3. calculate how much FBT to pay
4. lodge your FBT return
5. pay the FBT amount
6. check if you should report the fringe benefit through Single Touch Payroll (or on your employee's payment summary).

Taxable value of loan fringe benefits

The taxable value of a loan fringe benefit is the difference between the interest that:

• would have been charged on the loan if the statutory rate of interest had applied
• was actually charged.

Reductions and concessions

You can reduce the taxable value of a loan fringe benefit if your employee could have claimed a deduction for the interest on the loan. You may even be able to eliminate it entirely. This is called the otherwise deductible rule and can reduce your FBT liability. There are certain records you need to keep. For example, the employee would generally be entitled to a deduction if they use the loan to invest in shares or to acquire a car for work use.

GST doesn't affect the taxable value of loan fringe benefits. When grossing up the taxable value of loan benefits to calculate your FBT, you use the lower (type 2) rate.

Taxable value of debt waiver fringe benefits

The taxable value of a debt waiver fringe benefit is the total amount of the debt you've released, including accrued interest.

GST doesn't affect the taxable value of debt waiver fringe benefits. When grossing up the taxable value of these benefits to calculate your FBT, you use the lower (type 2) rate.

Records you need to keep

With record keeping for FBT, you must keep records that:

• show how you calculated the taxable value of the loan or debt waiver fringe benefit
• support any exemption or concession you used.

If you use the otherwise deducible rule for loan fringe benefits, you must get an employee declaration that states the extent to which the interest would be deductible. This is a substantiation requirement.