8.3 What is a loan fringe benefit?

A loan fringe benefit arises where you provide a loan to an employee and charge a low rate of interest (or no interest) during the FBT year. A low rate of interest is one that is less than the statutory rate of interest (also known as the benchmark interest rate).

The use of the term 'loan' is quite broad. For example, if an employee owes you a debt but you don't enforce payment at the time the debt becomes due, the unpaid amount is treated as a loan to the employee. Such a loan commences immediately after the due date, at the rate of interest (if any) that accrues on the unpaid amount. If you later decide to recover the debt, a loan benefit continues to arise provided the employee is still obliged to repay the outstanding amount.

Where you make a loan to an employee under terms that allow for interest payments to be made less frequently than every six months, you are treated at the end of each six months as having separately loaned, at a nil rate of interest, any unpaid amount of interest. The period of the deemed loan is from the end of the six months until the interest is paid or becomes payable.

Where you release an employee from the obligation to repay the loan, a debt waiver fringe benefit arises (refer to section 8.1).

    Last modified: 03 Jul 2012QC 17821