Fringe benefit tax on specific categories of benefits: Low-interest loans

Liable low-interest loans

Note
From 1 October 2010 personal tax rates have changed so the higher FBT rate of 61% has reduced to 49.25%. The following information is using the rates from 1 October 2010 onwards. If you are calculating your FBT requirements for periods prior to 1 October 2010, you will need to use the previous rates. Find out more about using previous rates on our alternate rate calculations page

This page is relevant to those employers wanting to know about the fringe benefit tax charged on:

• current account debit balances
• expense accounts
• loans to life insurance policyholders.

Current account debit balances

Where there is a debit balance in a current account of a shareholder-employee, fringe benefit tax is charged on the difference between:

• the prescribed rate of interest calculated on a daily basis on the amount overdrawn, and
• the actual interest charged and debited to the account.

Where a shareholder-employee is allocated further income after the end of the income year, that income is deemed to have been credited to the current account, on the later of these two dates:

• the first day of that income year
• the day the balance of the current account first became overdrawn during that income year.

Your approach to fringe benefit tax depends on which type of FBT return you file.

• If you file income year returns, you must work out the interest on the current account and pay any fringe benefit tax by the due date.
• If you have already filed quarterly returns, you must work out the correct interest and FBT payable on the current accounts for each quarter in the year. You may have to file amended returns, and we will charge additional tax on any fringe benefit tax owing.

Expense accounts

Fringe benefit tax is payable on interest-free expense accounts that you (as the employer) provide to employees when they can use those accounts to buy goods and services for private use. We use the prescribed rate of interest to calculate the tax payable.

However, fringe benefit tax is not payable if you charge interest to the expense account on a daily basis at the prescribed interest rate.

Loans to life insurance policyholders

Where the holder of a life insurance policy receives a loan from that life insurer, fringe benefit tax is payable as though the life insurer were the employer of the policyholder, and the loan was an employment-related loan. The same principle applies if the loan is offered to an associated person of the policyholder.

Loans by life insurers to life insurance policyholders are classified as pooled fringe benefits and are taxed at:

• 45.99% for 2011, or
• 42.86% for 2012 onwards, unless any recipient is a major shareholder-employee.

If a recipient is a major shareholder-employee, the whole pool is taxed at:

• 55.04% for 2011, or
• 49.25% for 2012 onwards.

 

 

Date published: 29 Sep 2010

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