Private ruling: Fringe Benefits tax - Exempt Loan Benefits
Date of advice: 3 November 2016
Published: February 2017
Ruling period: 01 April 201X - 31 March 202X
Date scheme commenced: 01 April 201X

Ruling: Q1: Will existing variable interest rate loans made by A's associate, to employees of A, be exempt loan benefits under subsection 17(2) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? | A1: Yes

Relevant facts and circumstances: A is the employer of employees who are provided fringe benefits. An associate of A, B Pty Ltd (B) is a financial institution which is engaged in the business of making loans to members of the public. Both A and B are members of a consolidated group and qualify as associates under subsection 136(1) of the FBTAA and section 318 of the Income Tax Assessment Act 1936. B has made variable rate loans to employees of A at staff rate which has historically been the lowest rate offered to members of the public. A has paid Fringe Benefits Tax (FBT) in relation to these loans. As part of their business of making loans to the public, B have also made a business decision to make such loans at arm's length, to a group of customers who are members of the public at the variable rate. The group of B customers who are identified and selected to be eligible as their customers are members of the public who maintain a value of their investment products with B, in excess of a set monetary value. As from 1 April 201X B will continue to make loans to employees of A and apply the same variable rate to those loans, as it applies to the loans to their customers. The variable rate of interest from time to time payable by A's employees will be the same as the variable rate of interest, payable by B's customers. The terms and conditions of the loans made to employees of A are similar to those loans made available to the customers as members of the public at arm's length and will only apply during the period the employee maintains his /her employment with A.

Relevant legislative provisions: Fringe Benefits Tax Assessment Act 1986 subsection 16(1) | Fringe Benefits Tax Assessment Act 1986 paragraph 17(2)(a) | Fringe Benefits Tax Assessment Act 1986 paragraph 17(2)(b) | Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Reasons for decision: Summary: The variable loans made to A's employees will be an exempt benefit under the operating provisions of subsection 17(2) of the FBTAA. Any existing loans which will continue to be made available by A's associate, B, to employees of A under the current policy decision and arrangement; and at the same variable rate of interest offered to customers of B, will be exempt loan fringe benefits under subsection 17(2) of the FBTAA for the whole period in the FBT year of tax post 1 April 2017 that the loan exists. | Detailed Reasoning - Detailed reasoning: Section 17 of the FBTAA provides an exemption from FBT of loan fringe benefits where certain conditions are satisfied. In particular the relevant exemption relating to loans made by a provider as part of a business of making loans to the public and at a variable arm's length interest rate is provided under subsection 17(2) of the FBTAA, which states; Where: (a) a loan is made by a person who carries on a business that consists of or includes making loans to members of the public; and (b) the rate of interest from time to time payable in respect of the loan in respect of the year of tax is not less than the rate of interest applicable at the time concerned in respect of a similar arm's length loan made by the person, at or about the time the loan referred to in paragraph (a) is made, to a member of the public in ordinary course of carrying on that business; the making of the loan is an exempt benefit in relation to that year of tax. B, as an associate of the employer A, is a financial institution which carries on a business that consists of or includes making loans to members of the public. B will be offering and continue to make repayable loans to the employees of A, which are considered to be “loan fringe benefits” as defined under subsection 136(1) and constituted under subsection 16(1) of the FBTAA. The loans made by B to A's employees will be offered and made at a discounted interest rate. The variable rate of interest from time to time payable by A's employees will be the same as the variable rate of interest, payable by B's customers. For the existing loans to A's employees, as from 1 April 201X, B will continue to make these loans to A's employees and will apply the same variable rate of interest and terms, as they apply to the loans of B's customers at arm's length. As the loans made to A's employees by an associate of the employer (B) are similar to the loans made to B's customers as members of the public at arm's length, and B's business consists of or includes making loans to members of the public, the variable loans made to A's employees will be an exempt benefit under the operating provisions of subsection 17(2) of the FBTAA. Any existing loans which will continue to be made available to employees of A under the current policy decision and arrangement, and at the same variable rate of interest offered to customers of B, will be exempt effective from 1 April 201X, and limited to the whole period in the FBT year of tax the loan exists. This decision is in line with the Commissioner's view in Taxation Determination TD 95/17 and Taxation Determination TD 95/18.