What’s considered a loan for fringe benefit tax (FBT), when FBT applies, and what types of loans are exempt.
What is a low-interest loan?
For fringe benefit tax, a loan includes:
- all advances (such as a salary advance)
- money loaned in any other way
- any credit given (including delaying recovery of a debt)
- an overdrawn current account of a shareholder.
When FBT applies
If the interest on the loan is less than the interest calculated using the prescribed rate or market rate on the daily balance of the loan, FBT applies to the difference. You do not pay FBT on the actual loan you provide to an employee.
If a loan is provided by another person on your behalf, FBT may also apply. For example, you must pay FBT on any low-interest loan provided to an employee by an associated company in a group of companies.
For more information, read Part 5 - Low-interest loans in the Fringe benefit tax guide – IR409.
Prescribed interest rates for low-interest loans
Overdrawn shareholder current account
You need to pay FBT on the difference between the prescribed rate of the daily interest calculated on the overdrawn current account, and the actual interest charged and debited.
Expense accounts
If you provide employees with interest-free expense accounts they can use to buy goods and services for private use, you need to pay FBT on interest at the prescribed rate or market rate, calculated on the daily balance.
Loans to life insurance policy holders
Where the holder of a life insurance policy in New Zealand receives a loan from the life insurer, FBT must be paid as though the life insurer was the employer of the policy holder, and the loan was an employment-related loan. This also applies if the loan is offered to an associated person of the policy holder.
No FBT on interest for certain loans
You do not pay FBT on the following types of loans.
Commercial credit available to the public
FBT does not apply to credit offered to your employees on the same basis available to the public. This is because the interest rate is the same rate the public receives.
Wage advances
You do not pay FBT on loans you provide as an advance against future salary or wages if both of the following apply.
- The combined amount outstanding for an employee is no more than $2,000.
- The contract of employment does not require you to make the advance.
The wage advance exemption does not apply to loans secured against real property, such as a mortgage.
Employee share loans
An employee share loan may be exempt from FBT if it meets certain conditions. For more information, go to part 5 of the Fringe benefit tax guide – IR409.
Exempt employee share purchase scheme
You do not pay FBT on loans provided to employees under an exempt employee share purchase scheme.
Exempt employee share schemes (Exempt ESS)
Working out how much FBT to pay
You pay FBT based on the taxable value of interest. This is the difference between the actual interest on the loan and what the interest would be if it were calculated at the prescribed or market rate.
The market rate is available to banks, financial institutions, and employers in a group of companies with a member in the business of lending money to the public. For more information about market rates, go to part 5 of the Fringe Benefit tax guide – IR409.
Prescribed interest rates for low-interest loans
Calculating the taxable value of low-interest loans
Attributing low-interest loan benefits
Loans to life insurance policy holders from a life insurer can be pooled. You need to attribute all other low-interest loans to the employee receiving the benefit.
Attributing fringe benefits to individual employees