ATO ID 2003/347: Loan Fringe Benefits - advance of money by cheque
Date of decision: 22 January 2003
Year of income: Year ended 31 March 2003
Business line: Superannuation and Employer Obligations

Issue
Is the date on which an employee receives a cheque for an advance of money from an employer, the time at which a loan benefit arises under subsection 16(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Decision
Yes. The date on which an employee receives a cheque for an advance of money from an employer is the time at which a loan benefit arises under subsection 16(1) of the FBTAA.

Facts
An employer offered to make a loan of money to an employee. Under the terms and conditions of the agreement, the loan was interest-free and immediately repayable by the employee on the cessation of their employment. The offer was accepted by the employee and the advance was paid by cheque. The employee held the cheque for a number of months before presenting it for payment at a bank. The borrowed funds were used by the employee to meet private expenses.

Reasons for decision
Summary: Under subsection 16(1) of the FBTAA, when an employer makes a loan of money to an employee, a loan benefit arises in respect of each year in which an employee is under an obligation to repay the whole or any part of the advance. In effect, this means that a loan benefit arises at the time when a loan is made. A cheque represents a written instrument that embodies a right to be paid and is generally regarded as payment of cash unless and until it has been presented and refused. In Tilley v. The Official Receiver (1960) 103 CLR 529 at 535 Kitto J, in a general observation concerning payment by cheque, stated that There can be no doubt that the acceptance of a payment by cheque implies, if there be nothing to the contrary, an agreement that it shall be considered as payment, subject to the condition subsequent that if the cheque be dishonoured it shall no longer be so considered. By accepting the cheque which is regarded as payment of the advance, the employee was at liberty to bank it or apply it as he or she wished. The employee chose not to bank the cheque immediately and when it was eventually presented for payment, it was honoured. It is considered that the right to draw the money is a loan and thus the loan benefit arose at the time the right was created or granted, which is when the cheque was handed to the employee. It is irrelevant that the employee did not present the cheque for payment for several months.

Legislative references: Fringe Benefits Tax Assessment Act 1986 subsection 16(1)
Case references: Tilley v. Official Receiver in Bankruptcy (1960) 103 CLR 529
Subject references: Cheques FBT loan Fringe benefits tax Loan fringe benefits