Let's say an administrative error means that a team member has been overpaid by quite a large amount for the last 12 months. The employee can't afford to repay the whole amount in one go so a repayment plan is agreed to. No interest is charged as it wasn't the employee's fault and this wouldn't be fair. The ATO would consider the overpayment a loan.
The fact that no interest is being charged means that FBT would apply. Loans need to be charged interest of at least the ATO's published interest rate, for 2012/2013 its 7.40%, to avoid paying FBT.
Advances in pay can also be considered a loan fringe benefit.
The most common scenario however, is shareholders being loaned money by the business. In other words, when one of the business owners or their associate (for example a spouse), need some cash and take it out of the business.
There are two ways these loans are treated. If the loan is made in connection with the person's role as a shareholder of a company, then as long as the loan is repaid before the company is due to lodge its tax return for that year, then there are generally no carry over tax issues.
However, in some situations these loans can be subject to FBT if they are made to a business owner in their role as an employee regardless of whether they are paid back by the end of the financial year.
Another problem area is when debts are not required to be repaid. If the employer agrees to forgive a loan, then this can also trigger FBT.
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Last updated April 2013. This article is provided for information purposes only and should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.
This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.