Fringe Benefits Tax: minor benefits exemption and interest free loans

Is an interest free loan, provided by an employer to its employees, exempt from fringe benefits tax (FBT) under the minor benefits exemption provisions of section 58P of the Fringe Benefits Tax Assessment Act 1986 (FBTAA), when the interest free loan is used to purchase a rail travel ticket?

Yes. The provision of the interest free loan is an exempt benefit under section 58P of the FBTAA.

The employee nominates, to the employer, the particular rail travel ticket that they require. The employer purchases the ticket on behalf of the employee.

The employer requires the employee to repay the cost of the ticket (the loan) over the life of the ticket. No interest is charged by the employer on the loan.

The arrangement is restricted to twice a year to limit the administration costs. The employee can only hold one valid (for travel) rail travel ticket from this arrangement at a particular time. Typically, the rail travel ticket will be valid (for travel) for a six or twelve month period.

The notional taxable value calculated on the amount of the interest free loan is less than $300 for the current year.

A loan benefit comes under section 16 of the FBTAA. If the loan benefit is also a minor benefit within section 58P of the FBTAA the loan benefit will be exempt from FBT.

Section 58P of the FBTAA sets out the conditions for a benefit to be a minor benefit and therefore exempt from FBT. Paragraph 58P(1)(a) of the FBTAA requires that the benefit be provided in the year of tax in respect of the employment of the employee. Further, paragraph 58P(1)(e) of the FBTAA requires that the notional taxable value of the benefit is less than $300 for the year. Finally, paragraph 58P(1)(f) of the FBTAA requires that, having regard to the listed criteria about the circumstances in which the benefit was provided, it would be unreasonable to treat the benefit as a fringe benefit in the year of tax.

There is only one loan benefit provided at any particular time and there would be a maximum of two loan benefits during the year.

The provision of the rail travel ticket itself would be an expense payment benefit under section 20 of the FBTAA and also an associated benefit under section 58P FBTAA. This associated benefit would have a nil notional taxable value as the employee repays the employer.

Having regard to the circumstances and in applying paragraph 58P(1)(f) of the FBTAA it is accepted that it would be unreasonable to treat the benefit as a fringe benefit. Therefore the loan benefit is an exempt minor benefit in relation to the current year of tax in terms of section 58P of the FBTAA.