ATO Interpretative Decision

ATO ID 2003/688

Fringe Benefits Tax

FBT - payment of interest to an employee by an employer
FOI status: may be released

This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

Does the payment by an employer of a marginally higher than market rate of interest to an employee/investor, give rise to a fringe benefit under the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Decision

No. The payment of a marginally higher rate of interest to an employee who has invested funds with their employer, does not have a sufficient or material connection with employment and does not give rise to a fringe benefit.

Facts

The business of the employer includes paying interest to members of the public who invest funds.

The employer offers to pay a rate of interest that is marginally higher than the market rate, to its employees, if they invest funds.

The offer to all employees is made on the same terms and conditions as to members of the public apart from the rate of interest.

Reasons for decision

Section 40 of the FBTAA provides that where an employer provides property to an employee, the provision of the property is taken to constitute a benefit.

Money is considered to be property for the purposes of section 40 of the FBTAA. Therefore, the payment of money in the form of interest, by the employer to an employee in these circumstances, constitutes a property benefit.

However, for a benefit to be a fringe benefit, it must be provided in respect of employment. Whilst the expression 'in respect of' has no fixed meaning, it has been considered by the courts on numerous occasions.

In J & G Knowles & Associates Pty Ltd v. Federal Commissioner of Taxation (2000) 96 FCR 402; 2000 ATC 4151; (2000) 44 ATR 22 it was noted that the term 'in respect of employment', includes benefits where

...there is a sufficient or material, rather than a, causal connection or relationship between the benefit and the employment...

It is considered that in these circumstances, the property benefit provided, being the total amount of interest paid by the employer to an employee investor, does not possess a 'sufficient or material' connection to employment. The payment of the total amount of interest is considered to be a consequence of the relationship of investor, despite the interest paid to employees being marginally higher than comparative rates available to members of the public.

Accordingly, the property benefit provided by the employer to an employee in the form of interest on funds invested, is not a fringe benefit, as it is not provided in respect of employment.

The total amount of interest received by an employee in these circumstances, is ordinary income for the purposes of section 6-5 of the Income Tax Assessment Act 1997.

Amendment History

Date of Amendment	Part	Comment
11 September 2015	Reasons for decision	Reference to TR 1999/5 removed.
	Legislative reference	Section 40 of the FBTAA

Date of decision: 2 July 2003

Year of income: Year ending 31 March 2004

Legislative References:
Fringe Benefits Tax Assessment Act 1986
section 40

Income Tax Assessment Act 1997
section 6-5

Case References:
J & G Knowles & Associates Pty Ltd v. Federal Commissioner of Taxation
   (2000) 96 FCR 402
   2000 ATC 4151
   (2000) 44 ATR 22

Keywords
Fringe benefits
Fringe benefits tax
In respect of employment
Income
Interest income
Property fringe benefits

Siebel/TDMS Reference Number: 3046363; 1-62U83R7; 1-DBQ501W

Business Line: Private Groups and High Wealth Individuals

Date of publication: 8 August 2003
Date reviewed: 4 January 2018

ISSN: 1445-2782

history

	Date:	Version:
	2 July 2003	Original statement
You are here	11 September 2015	Updated statement

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