Does a fringe benefit arise where an employer pays for an employee’s annual Myki (public transportation) card on the basis that the employee will repay the amount interest-free over the next 12 monthly pay periods?
We have paid for an employee’s annual Myki card pass on the basis the employee will repay us the amount interest-free over the next 12 monthly pay periods – do we have a fringe benefit that arises and, if so, do any exemptions apply?
Technically two fringe benefits arise: an expense payment fringe benefit and a loan benefit.
The purchase by you, of the annual Myki pass, is an ‘external payment expense fringe benefit’.
The taxable value of the relevant external payment expense payment fringe benefit is the amount of the payment made by you in respect of the transport pass less any amount contributed or paid by the employee towards the cost of that transport pass. Therefore, as the employee will repay to you the full cost of the annual Myki pass (albeit over 12 months) the taxable value of the relevant external payment expense payment fringe benefit will consequently be ‘nil’.
Under s.18 of the FBT Act, the taxable value of a loan fringe benefit is the difference between:
- the interest that would have accrued during the tax year if the statutory (benchmark) interest rate had applied to the outstanding daily balance of the loan, and
- the interest (if any) which actually accrued.
Where, as in this case, there is no actual interest payable on the loan the rate for accruing interest is deemed to be ‘nil’, under s.6(5) of the FBT Act, for the purposes of calculating the taxable value of the loan fringe benefit.
The statutory/benchmark interest rate for the 2020 FBT Year is 5.37%. As such, if the interest determined is less than $300, the minor benefit exemption can apply to exempt the loan benefit that arises.
If the interest so calculated is $300 or more, FBT will be payable accordingly.