Question

Question 4.   FBT

Brian is a bank executive. As part of his remuneration package, his employer provided him with a three-year loan of $1m at a special interest rate of 1% pa (payable in monthly instalments). The loan was provided on 1 April 201W. Brian used 40% of the borrowed funds for income-producing purposes and met all his obligations in relation to the interest payments.

• Calculate the taxable value of this fringe benefit for the 201W/1X FBT year.
• Would you answer be different if the interest was only payable at the end of the loan rather than in monthly instalments?
• What would happen if the bank released Brian from repaying the interest on the loan?

                                                                                                                                                (8+5+2 = 15 marks)

Answer 1

We know that:

Loan duration = 3 years

Loan amount = $1m

Interest rate = 1%

Amount used by Brian = 40%

The taxable value of this fringe benefit for the 201W/1X FBT year will be:

= 1/100 x 1000000

= 10000 (Regardless of the 60% which he did not use)

Yes, the answer will be different if the interest was only payable at the end of the loan rather than in monthly instalments. This is because of the different rates.

If the bank released Brian from repaying the interest on the loan still he will have to pay tax.