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Edited version of your written advice
Authorisation Number: 1013119357626
Date of advice: 3 November 2016
Ruling
Subject: Fringe Benefits Tax - Exempt Loan Benefits
Question 1
Will existing variable interest rate loans made by you to your employees, be exempt loan benefits under subsection 17(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?
Answer
Yes
This ruling applies for the following period(s)
01 April 20XX - 31 March 20YY
The scheme commences on
01 April 20XX
Relevant facts and circumstances
You are registered and operate as a bank which carries on a business that consists of or includes making loans to members of the public.
As part of your business of making loans to the public, you have also made a business decision to make such loans at arm's length, to a group of customers who are members of the public at a variable rate of interest.
The group of your customers, who are identified and selected to be eligible are members of the public who maintain a value of their investment products with you, in excess of a set monetary value.
You currently provide loans to your employees at a discounted interest rate. As from 1 April 20XX you will continue to make loans to your employees and apply the same variable rate to those loans, as it applies to the loans to your customers. The variable rate of interest from time to time payable by your employees will be the same as the variable rate of interest, payable by your customers.
The terms and conditions of the loans made to your employees are similar to those loans made available to the customers as members of the public at arm's length and will only apply during the period the employee maintains his /her employment with you.
Relevant legislative provisions
Fringe Benefits Tax Assessment Act 1986 subsection 16(1)
Fringe Benefits Tax Assessment Act 1986 paragraph 17(2)(a)
Fringe Benefits Tax Assessment Act 1986 paragraph 17(2)(b)
Fringe Benefits Tax Assessment Act 1986 subsection 136(1)
Reasons for decision
Summary
The variable loans made to your employees will be an exempt benefit under the operating provisions of subsection 17(2) of the FBTAA.
Any existing loans which will continue to be made available to your employees under the current policy decision and arrangement, at the same variable rate of interest offered to customers, will be exempt for the whole period in the FBT year of tax post 1 April 20XX that the loan exists.
Detailed reasoning
The relevant exemption relating to such loans is expressed under the provisions of section 17 in Division 4 of Part III of the FBTAA. For the exemption to apply, certain conditions must be satisfied.
In particular the relevant exemption relating to loans as a part of business and at a variable arm's length interest rate is stated under the operating provisions of subsection 17(2) of the FBTAA, which states;
Where
(a) a loan is made by a person who carries on a business that consists of or includes making loans to members of the public; and
(b) the rate of interest from time to time payable in respect of the loan in respect of the year of tax is not less than the rate of interest applicable at the time concerned in respect of a similar arm's length loan made by the person, at or about the time the loan referred to in paragraph (a) is made, to a member of the public in ordinary course of carrying on that business;
the making of the loan is an exempt benefit in relation to that year of tax.
You are a bank which carries on a business that consists of or includes making loans to members of the public.
In your capacity as employer, you will be offering and will continue to make repayable loans to your employees, which are considered to be “loan fringe benefits” as defined under subsection 136(1) of the FBTAA and constituted under subsection 16(1) of the FBTAA.
The loans to your employees will be offered and made at a discounted interest rate. The variable rate of interest from time to time payable by your employees will be the same as the variable rate of interest, payable by your customers.
For the existing loans to your employees, as from 1 April 20XX you will continue to make those loans to your employees and will apply the same variable rate of interest and terms as they apply to the loans to your customers at arm's length.
As the loans made to your employees are similar to the loans made to the your customers as members of the public at arm's length, and your business consists of or includes making loans to members of the public, the variable loans made to your employees at the same variable interest rate, will be an exempt benefit under the operating provisions of subsection 17(2) of the FBTAA.
Any existing loans which will continue to be made available to your employees under the current policy decision and arrangement, at the same variable rate of interest offered to customers as members of the public at arm's length, will be exempt effective from 1 April 20XX, and limited to the whole period in the FBT year of tax the loan exists.
This decision is in line with the Commissioner's view in Taxation Determination TD 95/17 and Taxation Determination TD 95/18.