Loan Repayments Held to be Fringe Benefits

In a recent decision the Federal Court held that loan repayments made by a company to its employees were in respect of their employment and were subject to fringe benefits tax (FBT).

The taxpayer company was in the business of purchasing race horses and forming syndicated partnerships. It was owned and managed by, and employed, a husband and wife. As a small business, working capital injections were required from time to time, so the two owners made loans to the company.

Personal expenses of the two owners were subsequently reimbursed by the company and this was treated as a repayment of the loans.

The Commissioner assessed those loan repayments as liable to fringe benefits tax. Broadly, a fringe benefit is a right, privilege, service or facility which is conferred to an employee, or an associate of an employee which is in respect of the employee’s employment.

The Federal Court agreed with the Commissioner’s finding that the loan repayments were in respect of their employment, as the company had no other employees and would not be able to operate without their work as employees. In addition, the release of the debts owed to the owners was regarded as a release of their own personal obligations including a mortgage and school fees.

The taxpayer has appealed this decision to the Full Federal Court.

2007 Motor Vehicle Claims

The following table provides the updated rates for motor vehicle expense claims on a per kilometre basis for the 2006/07 income year.

 

 

Important: This is not advice. Clients should not act solely on the basis of the material contained in this Bulletin. Items herein are general comments only and do not constitute or convey advice per se. Also changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. The Bulletin is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval