What is a loan fringe benefit?
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 do not 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.
For more information about loans and FBT, see FBT guide: 8 Loan and debt waiver fringe benefits.
What is a debt waiver fringe benefit?
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 is not 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.
For more information about debt waiver and FBT, see FBT guide: 8 Loan and debt waiver fringe benefits.
What to do if you provide a loan or debt waiver fringe benefit
You need to:
- work out the
- calculate how much FBT to pay
- lodge your FBT return
- pay the FBT amount
- 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, and
- the interest that was actually charged.
You can reduce the taxable value of a loan (possibly to zero) if the employee can claim a deduction for the interest on the loan. For example, the employee would be entitled to a deduction if they use the loan to invest in shares, or to acquire a car for work use.
You must get an employee declaration that states the extent to which the interest is deductible.
GST does not 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.
Example: work out the taxable value of a low-interest loan
On 1 April 2021 you lend an employee $50,000 at an annual interest rate of 4% (payable 6-monthly). The statutory interest rate is 4.52%.
Your employee is not required to repay any of the principal amount during the first 12 months.
The interest you actually charge for the 2021–22 FBT year is $50,000 × 4% = $2,000.
The interest at the statutory rate would have been $50,000 × 4.52% = $2,260.
The taxable value of the loan fringe benefit is the difference between the interest that would have been charged at the statutory rate, and the interest that you actually charged:
$2,260 − $2,000 = $260.
End of exampleTaxable 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 does not 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.
Find out if FBT applies when you lend money to an employee or forgive their debt, and how much you pay.