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Tax deductions as fringe benefits: The low down on low interest or interest-free loans

by , 23 March 2015
Are low interest or interest-free loans you give your employees a taxable fringe benefit?

Read on to discover the answer and how you should deal with this...

When is an employee loan a fringe benefit?

When it comes to loans, a taxable fringe benefit arises where you, any other person by arrangement, or an associated institution make a loan to an employee, and either no interest is payable on the loan or interest is payable at a rate lower than the official interest rate.

As a definition to keep in mind, the taxable benefit arising from the loan is the amount of interest that the employee would have paid had he been obliged to pay interest at the official rate, less the amount of interest (if any) actually incurred by the employee.

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12 Taxable fringe benefits - are you taking advantage of all of them?

There are hundreds of companies out there that don't know which fringe benefits are taxable or they land up taxing the wrong percentage on them...

This kind of error could cost you thousands in penalties to SARS if it catches you out – and it will!

Find out how to make sure every time you offer a fringe benefit to your employees you'll know if it's taxable or not and how to tax it correctly.


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The following three low or no-interest loans will not attract employees tax for your employee!

1. If an interest-free loan is made to your employee and it doesn't exceed R3 000 at any relevant time, this means that there is no taxable fringe benefit.

2. Secondly, if the loan is to enable your employee to further his studies, you don't have to charge interest on the loan and there is no taxable fringe benefit.

3. Any loan made to employees to acquire shares under a broad-based share incentive scheme under Section 8B of the Income Tax Act is tax-free.


Here's when the fringe benefit accrue to the employee

Bear in mind that a portion of the taxable benefit is deemed to accrue on each date during the year where your employee pays interest on the loan at regular intervals (monthly, weekly, etc.).

In addition to this, where your employee pays interest at irregular intervals, the benefit's deemed to accrue to him on the last day of each period during which any cash remuneration becomes payable.


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