03 9726 4650What is a Loan Fringe Benefit?
As an employer, you might find yourself in situations where you lend money to your employees.
Whether to help them out during a tough time or as part of a work-related arrangement, these loans can have certain tax implications, particularly regarding Fringe Benefits Tax (FBT).
When is an employee loan considered a fringe benefit?
A loan fringe benefit happens when you lend money to an employee and charge less interest than the official (statutory) rate, or no interest at all. The Australian Taxation Office (ATO) considers this a benefit because the employee is getting financial help from you that’s not available to everyone.
But what exactly counts as a loan?
It’s not just money you lend expecting repayment. If an employee owes your business money and you choose not to collect the payment by the due date, this also counts as a loan.
Are there any exemptions?
Not every loan you make to an employee is subject to FBT. There are specific exemptions, including:
Business loans
If your business is in the lending industry, and the interest rate you charge the employee is at least equal to what you would charge the general public on a similar loan, the loan is exempt from FBT.
Employment-related expenses
If the loan is an advance for the employee to cover work-related expenses within six months of receiving the loan, it’s also exempt.
Security deposit on accommodation
Loans given as an advance to pay for a security deposit on accommodation may be exempt, provided the accommodation itself is an exempt benefit or qualifies for reduced taxable value under relocation concessions. The advance must be repaid within 12 months.
What happens if you waive an employee’s debt?
If you decide an employee doesn’t have to repay their loan, you are giving them a debt waiver fringe benefit.
For example, if an employee buys something from your business but you later tell them they don’t have to pay, this is considered a debt waiver fringe benefit.
However, not all forgiven debts are taxable.
If the debt is genuinely unrecoverable (for example, if the employee can’t afford to pay and it has nothing to do with their job), it won’t be taxed as a fringe benefit.
How is the taxable value calculated?
When you provide a loan or debt waiver fringe benefit, you need to work out its taxable value:
Loan fringe benefits
The taxable amount is the difference between:
- The interest that should have been charged at the official (statutory) rate, and
- The actual interest you charged the employee.
For example, if the official rate is 4.52%, but you only charge 4%, the taxable value is the difference between these rates.
Debt waiver fringe benefits
The taxable value is simply the total amount of the debt you’ve released, including any accrued interest.
GST does not affect the taxable value of either loan or debt waiver fringe benefits. You’ll calculate your FBT using the lower (type 2) gross-up rate.
What should you do if you provide a loan or debt waiver fringe benefit?
If you offer these benefits to employees, you need to:
- Work Out the Taxable Value – Calculate how much of the loan or waived debt is taxable.
- Calculate FBT – Figure out how much tax you owe.
- Lodge Your FBT Return – Submit your FBT return on time to the ATO.
- Pay the FBT Amount – Ensure the correct tax amount is paid.
- Report the Benefit – Check if the benefit needs to be reported through Single Touch Payroll (STP) or on the employee’s payment summary.
Simplifying loans and FBT
Loans and FBT might seem complex, but with a clear understanding of how they work, you can manage them confidently and ensure compliance with tax regulations.
Always remember that staying informed and keeping good records is the key to handling these situations. And if you’re ever unsure, don’t hesitate to seek advice from a tax professional.
After all, ensuring your employees are well-supported while meeting your obligations is a win-win for everyone.
Don’t let tax complexities slow you down. Contact us today.