Determining FBT Payable on Loan Fringe Benefits - Desklib

TAXATION
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Question 4
The objective of this question is to determine the FBT payable on the part of the employer for
potential loan fringe benefits extended to employee Yan. The appropriate computation of the
loan fringe benefit is carried out in accordance with Division 4 of Fringe Benefit Tax
Assessment Act (FBTAA86) (Krever, 2016). As per s.16, FBTAA 86, loan fringe benefits are
extended to the employee by the employer when any loan amount is given to the employer at
an interest rate lower that benchmark interest rate given by the RBA (Reserve Bank of
Australia) in this regards (Reuters, 2017). This rate is given by the RBA on an annual basis.
For the year ending on March 31, 2018, the benchmark interest rate as highlighted by RBA is
5.25% p.a. in accordance with TD 2017/3. In the given case, the employer has provided the
employee Yan with loan at 2.25% pa. It is apparent that the interest rate charged by the
employer is lesser than the benchmark interest rate decided by the RBA for the given tax
year. Hence, it would be correct to conclude that the loan fringe benefits have been extended
to Yan.
The taxable value of the loan fringe benefits can be computed in accordance with Subdivision
B, Division 4 FBTAA 86. As per this subdivision, the loan fringe benefits would be
computed in accordance to the interest savings derived by the employer owing to interest rate
being lower than the minimum rate prescribed by RBA (Barkoczy, 2017).
Also, as per .s 19, FBTAA 86, deduction for the employer is available to the extent that the
loan amount is used for generation of assessable income (Coleman, 2015). In the given case,
only 30% of the loan amount is being used for deriving assessable income in the form of rent.
With regards to the remaining 70% of the loan amount, it is being used to buy main residence
which would not be used for producing any assessable income. Hence, the relevant
computations of deduction are shown as follows.
Step 1: Taxable value of loan fringe benefit
Taxable value of loan fringe benefit= { A × ( B−C ) × E
D }× F
Where,
A= Loan amount =$100,000
B= Statutory interest rate declared by RBA =5.25% p.a. (TD 2017/3)
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