What you need to know about loan and debt waiver fringe benefits

A loan fringe benefit arises where an employer provides a loan to an employee (or associate of an employee) and charges either a low rate of interest (or no interest). A low rate of interest is one that is less than the statutory rate of interest (also known as the benchmark interest rate, which is currently 8.77% for the FBT year ended 31 March 2025). A loan benefit can also result from a loan granted by an associate of an employer, or a third party under an arrangement with the employer.

The taxable value of a loan fringe benefit will generally be calculated as the difference between the statutory interest rate and the actual interest rate charged by the employer on the loan balance, across the FBT year.

Relevantly, the use of the term 'loan' in the context of loan fringe benefits is quite broad and can include any transaction, irrespective of the terms or form of the transaction, which in substance effects a loan of money to the employee, or financial accommodation. This means that loan fringe benefits can arise even where there is an absence of formal documentation that would generally be associated with the creation of a loan.

Accordingly, there are a range of practical scenarios in which a loan fringe benefit can arise, which may not be front of mind for employers. While the below list is not exhaustive in this respect, we have sought to highlight some of the more common loan fringe benefit scenarios and considerations that we typically encounter: 

• Salary overpayments
  • Where an employer inadvertently overpays salary or wages to an employee and subsequently requires the employee to repay the identified overpayment amount, this may constitute a loan fringe benefit.
• Loan funded share plans (including limited recourse loans)
  • Where an employer lends money to an employee to facilitate the purchase of shares or options issued by their employer, a loan fringe benefit may arise.
  • Depending on the rights attached to the shares or options and whether the shares or options are held personally by the employee, the otherwise deductible rule may be available to reduce the taxable value of the loan fringe benefit.
• Loans for personal expenses
  • Employers can sometimes provide employees with a short-term loan or advance to assist them in meeting personal expenses (relocation, family, education, medical etc.).
  • In these cases, it is important to review the terms of the agreement (whether that be formal or informal terms) to determine if a loan fringe benefit arises.
• FBT exemptions for loan fringe benefits

Where a loan fringe benefit arises, consideration should be given to any available concessions or exemptions. A non-exhaustive list is below:

• The otherwise deductible rule may apply to reduce the taxable value of the loan, if the loan is to the employee, and there is a reasonable expectation that the loan will produce assessable income for the employee (e.g. via dividends acquired by the loan).
• The minor benefits exemption may be available where the taxable value of loan benefit is below $300 (inclusive of the goods and services tax (GST)), and the benefit is provided to the employee on an irregular and infrequent basis.
• Additionally, other exemptions may be available where the employer is in the business of lending money to members of the public and charges a rate of interest to the employee that is on an arm’s length basis, or if the loan relates to certain employment related expenses that are to be repaid in full within 12 months.

Where an employer releases an employee from the obligation to repay an amount that is owed to the employer, a debt waiver fringe benefit will typically arise. 

The main exception to this arises where the employer writes off a genuine bad debt that cannot be recovered from the employee after reasonable efforts are made and this write off is made for reasons that are unrelated to the employee relationship. In these circumstances, a debt waiver fringe benefit may not arise if the employer can demonstrate all reasonable efforts were made to recover the debt and the write-off was made in accordance with company policy for debts owed by all third parties.

Employers should consider available ATO guidance on writing off bad debts when considering this position.

Furthermore, and to address a common misconception, it is possible for a loan to result in a loan fringe benefit, and a subsequent waiver of that same loan to result in a debt waiver fringe benefit.

It is important to note that the rules for both loan fringe benefits and debt waiver fringe benefits can be complex and often require a detailed assessment of multiple factors.

If you have any questions in relation to whether either loan or debt waiver benefits are applicable to your business, please contact your PwC representative for a discussion.