Issue
Does the agreement entered into between the employer and the employee, whereby an employee is given time to repay overpaid salary, constitute a loan benefit for the purposes of subsection 16(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?
Decision
Yes. The agreement entered into between the employer and the employee, whereby an employee is given time to repay overpaid salary, does constitute a loan benefit for the purposes of subsection 16(1) of the FBTAA.
Facts
The employer is an entity and has employees.
Due to an administrative oversight, an employee is overpaid a substantial amount of salary.
At the point in time the overpayment is identified/quantified the employee is notified in writing of the overpayment.
An agreement is entered into whereby the employee will repay the overpaid salary.
The overpaid salary is a substantial amount and the employee agrees to repay the salary to the employer over a two year period.
Reasons for Decision
Under subsection 16(1) of the FBTAA a benefit, defined as a 'loan benefit' in subsection 136(1) of the FBTAA, arises where a person (the provider) makes a loan to another person (the recipient). The benefit exists in respect of each year in which the recipient is under an obligation to repay the whole or any part of the loan.
A 'loan' is defined in subsection 136(1) of the FBTAA to include an advance of money, the provision of credit or other form of financial accommodation, the payment of an amount on account of another person where there is an obligation (whether express or implied) to repay the amount and a transaction (whatever its terms or form) which in substance effects a loan of money.
The actual overpayment of salary does not constitute a loan fringe benefit as payments of salary or wages are excluded from the definition of 'fringe benefit' in subsection 136(1) of the FBTAA. However, where an agreement is entered into whereby an employee is given time to repay an amount overpaid, it is considered that a loan benefit arises at the time of the agreement being entered into.