Financial Services

Loan Fringe Benefits Tax (FBT) Policy

Further information

Overarching Fringe Benefit Tax Policy


On occasion, the University provides low-cost loans to certain employees.

  1. Policy statement
  2. Exemptions
  3. Taxable value

Policy statement

A loan fringe benefit will arise where:

  • a loan is provided by the University to an employee or associate
  • the loan is not exempt
  • the interest rate charged on the loan is less than the relevant statutory interest rate.

A loan fringe benefit will exist in each FBT year that the employee is under an obligation to repay either the whole or part of the loan and the interest rate is less than the relevant statutory interest rate. An obligation to repay an amount exists both where a payment is not yet due and where an obligation is not enforceable by law.

A loan is defined to include:

  • an advance of money
  • the provision of credit or any other form of financial accommodation
  • the payment of an amount which gives rise to an obligation (whether express or implied) to repay the amount
  • a transaction (whatever its terms or form) which, in substance, is a loan of money.

Further, a loan will be deemed to exist in the following circumstances:

  • an employer does not enforce the payment of a debt owed by an employee when it becomes due
  • a loan, made by an employer to an employee, accrues interest which is not payable at least every six months (at each six-month interval, a separate interest-free loan is deemed to arise in respect of the unpaid interest).

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Exemptions

A loan will not produce a loan fringe benefit in the following situations:

  • An advance is made to a current employee to cover employment related expenses where:
    • the expenses are to be incurred within a maximum of six months of the advance being made
    • within the six-month period the employee must account to the employer, in respect of the expenditure incurred and repay any amount not accounted for.
  • An advance, repayable within 12 months, is made by an employer to an employee to enable the payment of any amounts in relation to a security deposit (or similar) for employment-related temporary accommodation provided by the employer. (The employee must also be provided with a benefit in connection with accommodation which is exempt as the employee is required to live away from his/her usual place of residence or which is subject to a reduction in taxable value because the employee is required to change his/her usual place of residence).

Where an establishment fee for a loan is waived, it is regarded as a residual fringe benefit rather than a loan fringe benefit.

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Taxable value

The taxable value of a loan fringe benefit in a FBT year is the amount by which the notional amount of interest (as calculated by applying a specified interest rate to the daily balance of the loan) exceeds the actual amount of interest accruing on the loan. Each loan is to be considered separately.

Reduction in taxable value

The taxable value of a loan fringe benefit will be reduced to the extent to which the notional interest on the loan would otherwise be allowable as an income tax deduction to the employee. For example, where the loan is used to finance the purchase of shares with the expectation of producing a sufficient dividend stream, the loan would not be a taxable benefit because the interest on the loan would normally have been wholly deductible for income tax purposes.

Declarations

In order to prove deductibility, the employee must provide to the employer a declaration, which specifies the use to which the loan was put and the extent to which interest on the use of the loan was deductible.

Where the loan was used to purchase or lease a car which is used for business or employment-related purposes, complete the relevant declaration.

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