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Here's how to give your employee's relatives a tax-free loan

by , 14 August 2014
If you give your employee a loan and don't ask them to pay it back, your employee will pay fringe benefit tax on that money. But what you may not know is you can give your employee's relatives a loan tax-free.

Sure, normally any benefits you give your employee's relatives will result in tax, but there are situations where you can give his relatives a loan and it won't cost your employee anything.

Just ensure you do the following or that loan won't qualify for this benefit...

 

You can give your employee's relative a tax-free loan if you do the following

 
1. If you charge interest at the official interest rate. 
 
The interest is deductable for your company. 
 
And the relative can take advantage of on interest exemption of up to a maximum of R22 800 (for people under the age of 65) and R33 000 (for people over 65). This means the relative will only have to pay tax on any interest that exceeds this amount.
 
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2. If the relative repays the loan the debit loan account won't show this as a dividend. But you can only do this once for the duration of the company-shareholder relationship. That means if he takes a second or subsequent loan from the company, it'll be a dividend even if he repays the loan.
 
Remember, though if you don't ask your employee or his relative to pay back the loan, your employee will have to pay tax on it. 
 
So before you go hand out loans to your employee, or his relatives, ask him if he minds paying the extra tax. 
 

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