Fringe benefit tax on specific categories of benefits: Low-interest loans
Exempt low-interest loans
Loan credit is the same as normal commercial credit
If you give credit to an employee that is the same as the normal commercial credit that your business offers the general public, this low-interest loan is not subject to fringe benefit tax.
Example
A car dealer offers interest-free finance to the general public when purchasing a new car. Matiu, an employee, buys a new car and takes advantage of the interest-free finance that his employer is offering.
Although the interest that is payable (nil) is lower than the prescribed or market rate, this loan is not subject to fringe benefit tax as the finance is available to the general public.
Wage advances
Loans which are provided as an advance against future salary or wages by employers will not incur an FBT liability provided the aggregate amount outstanding for an employee does not exceed $2,000. The loan provided to the employee must not form part of an employment package.
This exemption does not apply to loans which have been secured against real property, such as a mortgage.
Employee share-purchase schemes
An employee share-purchase scheme may be exempt from fringe benefit tax, provided it meets all of the following conditions.
- For the period that the loan is outstanding and the exemption is used, the sole purpose of the loan is to enable the employee to acquire shares or rights, or options to shares, in the company of the employer (or their associate), and the loan is used only for this purpose.
- The employee must beneficially own the shares, rights or options at all times for the period of the loan.
- A condition of the loan is that it must be repaid in full if the employee ceases to be the beneficial owner of the shares, rights or options.
- The company issuing the shares, rights or options is not a qualifying company.
- The employer and employee are not associated persons.
- The company issuing the shares, rights or options maintains a dividend paying policy for the period of the loan.
- The employer has not received written approval from Inland Revenue to claim a notional interest expense.
If you have any queries about whether a particular scheme qualifies for exemption, please call us on freephone 0800 377 772.
Date published: 30 Mar 2006
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