Fringe Benefit Tax (FBT) Calculation: Loan Benefits for Employees

This document provides a comprehensive solution to a taxation assignment, specifically focusing on the calculation of Fringe Benefit Tax (FBT) for potential loan fringe benefits extended to an employee. The solution meticulously follows the guidelines outlined in the Fringe Benefit Tax Assessment Act (FBTAA86) and references relevant rulings from the Reserve Bank of Australia (RBA) regarding benchmark interest rates. The assignment details the step-by-step computation of the taxable value of the loan fringe benefit, considering the difference between the employer's interest rate and the RBA's benchmark rate. Furthermore, it calculates the FBT liability based on the taxable value and the applicable FBT rate for the fiscal year 2018. The solution also accounts for deductions available to the employer, considering the portion of the loan used for generating assessable income. The final result presents the net FBT liability after deductions, providing a clear understanding of the tax implications of employee loans.

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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 valueof loan fringe benefit= { A × ( B−C ) × E
D } × F
Where,
A= Loan amount =$100,000
B= Statutory interest rate declared by RBA =5.25% p.a. (TD 2017/3)
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C = Interest rate set by employer = 2.25% p.a.
D = Total days in FBT years =365 days
E = Total days in FBT year when the loan was available to employee = 365 days (Period
between 1 April 2017 to 31 March 2018) (Krever, 2016)
F = Gross up rate of loan (loan is Type II good under GST 1999) = 1.8868
Now,
Taxable valueof loan fringe benefit = {100,000 × (5.25 %−2.25 % ) ×365
365 }×1.8868
Taxable value of loan fringe benefit =$ 5660.40
Step 2: FBT liability
FBT liability=Taxable value of loan fringe benefit × FBT rate
FBT rate for FY2018 =47%
FBT liability=$ 5660.40∗47 %=$ 2660.38
Deduction value=100,000 × ( 5.25 %−2.25 % )∗30 %=$ 900
Hence, the net FBT liability after deduction ¿ $ 2660.38−$ 900=$ 1760.38
Therefore, the net fringe benefit tax liability on the account of loan fringe benefit is $1760.38.
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References
Barkoczy, S. (2017) Foundation of Taxation Law 2017 (9th ed.). North Ryde: CCH
Publications.
Coleman, C. (2015) Australian Tax Analysis (4th ed.). Sydney: Thomson Reuters
(Professional) Australia.
Krever, R. (2016) Australian Taxation Law Cases 2017 (2nd ed.). Brisbane: THOMSON
LAWBOOK Company.
Reuters, T. (2017) Australian Tax Legislation 2017 (4th ed.). Sydney. THOMSON
REUTERS.
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