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Fringe benefits tax: can the making of a loan to an employee be an exempt benefit under subsections 17(1) or 17(2) of the Fringe Benefits Tax Assessment Act 1986 where the employee is entitled to, or subsequently does, receive a reduced interest rate not available to members of the public?

Preamble

No. Those subsections only operate to exempt loans which are made on the same terms as arm's length loans made at or about the same time to members of the public in the ordinary course of the employer's business.

Subsection 17(1) requires that the interest rate payable in respect of the loan is fixed. If the terms of the loan provide for the interest rate to be varied, then the exemption will not apply, and the value of the benefit should be determined under section 18.

The exemption provided under subsection 17(2) is conditional upon the interest rate from time to time payable under the loan being at least equal to the interest rate applicable to a similar arm's length loan made at or about the time of the employee loan. Where the interest rate on the employee loan falls below that of the comparable loan then the making of the loan is not an exempt benefit in that year. As the exemption does not apply, the taxable value of the benefit should be determined under section 18 by reference to the whole of the period in the year of tax during which the loan existed, not simply from the date that the interest rate was varied.

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