Benefit information

Loan fringe benefit overview

A loan fringe benefit arises when an employer lends money to an employee at an interest rate below the statutory interest rate and there is an obligation to repay all or part of the loan. The same applies if you lend money to an employee at no interest.
The taxable value of the loan fringe benefit is difference between the notional interest that would have been charged and the interest was actually charged.
A fringe benefit does not arise for loans:
  • Provided by a person who carries on a business of providing loans to the public and where the interest charged in respect of the loan is equivalent to interest charged on similar arm's length loans provided to members of the public at or around the same time.
  • By the employer in the form of an advance to a current employee to meet expenses incurred by the employee in the course of performing their employment duties and where the advance is used within six months and any outstanding amounts are required to be repaid to the employer.
  • By the employer to an employee to pay rental bond or security deposits for electricity, gas, or telephone services in connection with temporary accommodation provided for by the employer and where the loan has been repaid within 12 months.
  • Consisting of property. Loans of property are dealt with under other areas of the FBT Act.

Additional Considerations

FBT does not apply to a loan in relation to a shareholder or associate in a private company that causes the private company to be taken to pay the shareholder (or associate) a dividend.
The taxable value of a loan to an employee who lives and works in a remote area to assist them to purchase a home may be able to be reduced by 50%. Such a loan may also be an excluded benefit and not reportable on employee payment summaries.

Notional and actual interest

Notional interest is calculated at the appropriate rate for the loan (statutory benchmark interest rate) on the daily balance of the loan, that is, the balance of the loan at the end of a day.
Interest accruing under a loan is not itself part of a loan, even where the terms of the loan effectively require unpaid interest to be added to the loan principal. Interest remaining after the due date for payment is deemed to be a separate loan in respect of which a loan benefit may arise. Also, a loan on which interest accrues, but where the interest is not payable at least every six months, gives rise to a new loan of that deferred interest.
Actual Interest is the amount of interest that has accrued in respect of the loan.

Latest Information

See the ATO website for additional details and the most up to date information:

Loan Fringe Benefit Examples

Interest free loan
This example illustrates the application of the loan fringe benefit provisions where there is no interest charged.
Scenario
  • A loan of $10,000 is provided to an employee on 1 April 2021.
  • The interest rate charged on the loan is 0.00% annually.
  • The benchmark interest rate is 4.52% annually (notional interest).
  • No principal repayments were required for the first 12 months.
The taxable loan fringe benefit at 31 March 2022 would be calculated as follows:
Notional Interest:
$452 = $10,000 x 4.52%
Actual Interest paid:
$0 = $10,000 x 0.00%
The difference of $452 is the taxable value of the loan fringe benefit at 31 March 2022.
Interest payable in installments
This example illustrates the application of the loan fringe benefit provisions where interest is paid in quarterly instalments.
Scenario
  • A loan of $10,000 is provided to an employee on 1 April 2021.
  • The interest rate charged on the loan is 4.00% annually, accruing monthly, payable in quarterly instalments.
  • The benchmark interest rate is 4.52% annually (notional interest).
  • No principal repayments were required for the first 12 months.
In this example the interest accruing on the loan is approximately $33.30 per month, which is less than the interest that would be payable where the notional interest rate of 4.52% is applied.
note
In this scenario, interest is charged on an annual basis. Where the interest is compounding monthly, the loan balance will increase. Where the interest is paid within a six month period it will not be considered to be a separate loan.
The interest charged will not constitute a separate loan as the interest is paid quarterly. There will be only one loan fringe benefit at the end of the FBT year.
The taxable loan fringe benefit at 31 March 2022 would be calculated as follows:
Notional Interest:
$452 = $10,000 x 4.52%
Actual Interest paid quarterly:
$400 = $10,000 x 4.00%
The difference of $52 is the taxable value of the loan fringe benefit at 31 March 2022.
note
Only one loan fringe benefit arises when the interest is paid at any time within the six months from the loan being made.
Deferred Interest Loans
The software does not automatically calculate deferred loans. You must calculate deferred loans separately and enter them as a new loan. Select
No
 in the
Scheduled loan?
 column and complete the
Loan Benefit Amount
 field directly.
The following example illustrates a loan fringe benefit where interest is deferred.
Scenario
A loan of $100,000 is provided to an employee on 1 April 2019.
  • The interest rate charged on the loan is 4.00% annually, accrued monthly.
  • The benchmark interest rate is 5.37% annually (notional interest).
  • The interest was deferred for the first year.
  • No principal repayments were required during the first year.
In this example, the employer will be taken to have made three separate loans, as follows:
  • Loan 1
     : The loan fringe benefit on the loan amount at the statutory rate for the full FBT year.
  • Loan 2
     : The unpaid interest for the first six months will constitute a new loan.
  • Loan 3
     : The unpaid interest at the end of the next 6 months will constitute a new loan.
Notional interest ;
Actual interest
Interest rate
5.37%
4.00%
Loan amount
$100,000
$100,000
Month
Days
Accrued notional interest
Interest/mth
Accrued (unpaid) interest
6 mth deferred interest
Apr 2018
30
440.16
327.87
327.87
May 2018
31
454.84
338.80
666.67
Jun 2018
30
440.16
327.87
994.54
Jul 2018
31
454.84
338.80
1333.33
Aug 2018
31
454.84
338.80
1672.13
Sep 2018
30
440.16
327.87
2000.00
$
53.70
Oct 2018
31
454.84
338.80
2338.80
Nov 2018
30
440.16
327.87
2666.67
Dec 2018
31
454.84
338.80
3005.46
Jan 2019
31
454.84
338.80
3344.26
Feb 2019
29
425.49
316.94
3661.20
Mar 2019
31
454.84
338.80
4000.00
$
53.70
366
$5,370.00
$4,000.00
Taxable value
Loan 1 (full year)
$1,370.00
($5370 - $4000)
Loan 2 (6 month)
$53.70
($2000 x 0.0537) x (183/366)
Loan 3 (6 month)
$53.70
($2000 x 0.0537) x (183/366)
The two unpaid (deferred) interest loans arise at the beginning of month 7 and 13, on the accrued interest of approximately $2,000, representing the interest unpaid at the end of month 6 and 12.

Loan substantiation

In order to claim a reduction in taxable value, a declaration must be obtained by the employer in an approved format, and must be given to the employer before the due date for lodgment of the applicable FBT return.
A declaration does not have to be obtained where the loan is in relation to an:
  • Employee credit loan benefit (the provision of interest free credit to an employee to purchase goods/services to be used exclusively by the employee in the course of performing employment duties, eg. tools of trade);
  • Employee share loan benefit (the provision of a loan to an employee) in order to purchase shares in the employer (or associate of the employer) company.
Special rules
Special substantiation rules apply where the loan is a car loan benefit. Copies of odometer records and log books must be provided when it is a 'log book year of tax' so that the employer may specify a business percentage based on these records. Alternatively, in a 'non-log book year of tax', odometer records must be maintained and a business percentage must be nominated in the employer's car records based on the most recent log book records maintained, adjusted for any variations during the holding period. Where the substantiation rules have not been complied with and the car travels greater than 96 business kilometres in a week or 5,000 in a year, there are 2 options available as to the type of declaration that can be made:
  1. a declaration setting out the holding period and stating that the average number of business kilometres exceed 96 km per week in that period; or
  2. a declaration setting out the holding period, the total number of business kilometres travelled by the car during that holding period and the total number of kilometres travelled by the car in that period.
Where the substantiation rules have not been complied with and the car travels less than 96 business kilometres in a week, a declaration is required setting out the holding period, the total number of business kilometres travelled by the car during that holding period and the total number of kilometres travelled by the car in that period.
  • Holding period
     is the period that the car was owned by, leased or otherwise made available to the recipient of the loan benefit.
  • A
    business kilometre
     is a kilometre travelled by the car in the course of a business journey, that is a journey undertaken in the car in the course of producing assessable income (whether for the employee or not).
Business use percentage is the percentage worked out using the formula:
Number of business KM travelled by the car during holding period
-----------------------------------------
x 100%
Total number of KM travelled during the holding period

This article applies to:

  • Product: ONESOURCE Fringe Benefits Tax