In this edition of the 2025 FBT Series, we explore how loan fringe benefits and debt waiver fringe benefits may arise and highlight some key considerations for employers to ensure compliance with Fringe Benefits Tax (FBT) obligations relating to these types of benefits.
Loan Fringe Benefits
What is a loan fringe benefit?
A loan fringe benefit arises when an employer (or an associate of the employer) provides a loan to an employee or their associate and charges no interest or interest below the statutory rate.
- For the FBT year ending 31 March 2025, the statutory (benchmark) interest rate is 8.77%.
- The benefit also applies to loans provided through a third party arranged by the employer.
How is it valued?
The taxable value is generally calculated as the difference between the statutory interest rate and the interest actually charged, applied over the outstanding loan balance for the FBT year.
What qualifies as a “loan”?
The definition of a loan is broad and includes any financial assistance, even if there is no formal agreement in place.
In essence, if the arrangement results in an employee receiving funds or support they are expected to repay, it may be considered a loan for FBT purposes.
Common examples of loan fringe benefits:
- Salary overpayments
When an employee is accidentally overpaid, and the employer seeks repayment, the overpaid amount may be treated as a loan fringe benefit. - Employee share scheme loans
If an employer lends funds to help an employee buy company shares or options (including limited recourse loans), a loan fringe benefit may arise.
In some cases, the otherwise deductible rule may apply to reduce the taxable value. - Personal expense loans
Employers sometimes provide short-term loans for things like relocation, education, medical expenses, or family needs. These can still trigger loan fringe benefits.
Exemptions and concessions
If a loan fringe benefit is identified, employers should consider available exemptions or concessions:
- Otherwise Deductible Rule
If the loan is expected to produce assessable income for the employee (e.g. dividends), the taxable value may be reduced. - Minor Benefits Exemption
If the loan benefit is worth less than $300 including GST, and is provided infrequently and irregularly, it may be exempt. - Commercial loan exception
If the employer is in the business of lending to the public and provides the loan on commercial terms, it may not be treated as a fringe benefit. - 12-month repayment for work-related expenses
Loans used to cover specific work-related expenses that are repaid within 12 months may also qualify for exemption.
Debt Waiver Fringe Benefits
What is a debt waiver fringe benefit?
A debt waiver fringe benefit arises when an employer forgives or waives an employee’s obligation to repay a debt they owe to the employer.
What are the exceptions?
If the employer writes off a genuine bad debt (for example, the employee cannot repay and reasonable recovery efforts were made), this may not be considered a fringe benefit—as long as:
- The write-off is not linked to the employment relationship, and
- The process follows the employer’s general debt recovery policy (the same as applied to third parties).
Employers should consult ATO guidelines on bad debt write-offs before taking a position.
Important clarification:
Many people assume that once a loan is classified as a fringe benefit, it ends there. In fact:
A single loan can first result in a loan fringe benefit, and if later forgiven, may also trigger a debt waiver fringe benefit.
Both stages can have separate FBT consequences and should be assessed independently.
Final thoughts
Both loan and debt waiver fringe benefits are complex areas of FBT law. Employers are encouraged to:
- Regularly review policies around employee loans, salary advances, and repayments.
- Keep clear records, even for informal arrangements.
- Seek professional advice when uncertain about potential FBT obligations.
If you’re unsure whether your business may be exposed to FBT through loan or debt waiver fringe benefits, we recommend speaking with your tax adviser or reaching out to your Boa & Co. representative for tailored advice. Call 1300 952 286, email [email protected] or visit www.boanco.com.au for more information.