3.9.3.33 Employer provided benefits - school fees, private health insurance & low interest loans

Summary

This topic contains information on the assessment, as income for the CSHC income test, of employer provided:

  • school fee payments
  • private health insurance, and
  • low interest loans.

Definition & assessment of school fee payments

A person receives a school fee benefit if their employer pays an amount to them, or to a school, for a primary or secondary level education, tuition, book or equipment fees for:

  • a dependent child (1.1.D.70) of the person or person's partner (1.1.P.85), OR
  • a child who would be a dependent child of the family but is getting NSA or SA.

The value of a school fees payment is the actual amount of the payment.

Definition & assessment of private health insurance

A person receives a health insurance benefit if their employer pays an amount to them, or to a health insurance fund, for the cost of health insurance that covers:

  • the person
  • their partner
  • a dependent child of the person or their partner, OR
  • a child who would be a dependent child of the family but is getting NSA or SA.

The value of a health insurance benefit is the actual amount of the payment.

Definition of low interest loans

A person receives a low interest loan benefit if their employer makes a loan to them. A loan includes:

  • an advance of money
  • the provision of credit or any other form of financial arrangement
  • the payment of an amount for, on account of, on behalf of, or at the request of a person, where there is an obligation to repay the amount, or
  • a transaction which has the effect of a loan of money.

Explanation: An advance from an employer to cover 'set up' costs is NOT considered to be a loan.

Example: Set up costs include security deposits for electricity, phone services or rental bonds.

A loan is EXEMPT if:

  • the interest rate applied to it equals, or is greater than, the applicable notional interest rate, or
  • it is a housing loan to a member of the Defence Force made by the Defence Force or its agent.

Notional interest rates

The notional rate of interest is the lowest variable rate of interest that is available for 1 April in the preceding tax year from the Commonwealth Bank, ANZ Bank, National Australia Bank and Westpac Bank.

The following table shows the notional interest rate applying to housing loans and other loans from 2016-17 to 2019-20.

Adjusted taxable income tax year 1 April Rate for housing loan % Rate for any other loan %
2016-17 2016 5.56 12.45
2017-18 2017 5.25 12.30
2018-19 2018 5.20 12.69
2019-20 2019 5.36 12.69

Act reference: SSAct section 1157Q(4A) For the purposes of subsection (4) …

Assessment of low interest loans

The value of a loan fringe benefit is determined using the following formula:

number of allowable weeks × interim value of the loan ÷ 52.

Number of allowable weeks is the number of complete weeks in the appropriate tax year that the person had the loan.

Interim value of the loan is the actual rate of interest less the notional rate of interest multiplied by the amount of the loan (both the principal and interest) that is outstanding in the appropriate tax year.

Loan rates and outstanding loan amounts, can vary over time and within a tax year. The following table shows the appropriate actual interest rate and outstanding loan amount to apply for a loan starting at a given time of the tax year.

If the loan starts … then the interest rate is the rate payable … and the outstanding loan amount is the amount …
after 1 July in the appropriate tax year, on the day on which the loan starts, outstanding on the day on which the loan starts.
in any other case, on 1 July of the appropriate tax year, outstanding on 1 July of the appropriate tax year.

Example 1: Loan received after 1 July in the appropriate tax year

A person lodged a claim for a CSHC in October 2018. Their appropriate tax year is 2017-18. The person received a $20,000 housing loan from their employer on 1 September 2017 at 2% interest. The person had the loan for 43 complete weeks of the 2017-18 tax year. The notional interest rate for a housing loan on 1 April 2017 is 5.25%. Using the formula, the loan fringe benefit value is:

  • 1 September 2017 to 30 June 2018 = 43 complete weeks (number of allowable weeks)
  • 5.25% − 2% = 3.25% (notional rate − actual rate)
  • $20,000 outstanding loan amount (the amount outstanding on the day on which the loan starts)
  • $20,000 × 3.25% = $650 (interim value of the loan)
  • (43 × $650) ÷ 52 = $537.50 (value of the loan fringe benefit)

Example 2: Loan received before 1 July in the appropriate tax year

A person lodged a claim for a CSHC in October 2018. Their appropriate tax year is 2017-18. The person received a $15,000 personal loan from their employer on 1 December 2016. As at 1 July 2017, the outstanding loan amount was $10,000 at 5% interest. The person had the loan for all of the 2017-18 tax year. The notional interest rate for another loan on 1 April 2017 is 12.3%. Using the formula, the loan fringe benefit value is:

  • 1 July 2017 to 30 June 2018 = 52 complete weeks (number of allowable weeks)
  • 12.3% − 5% = 7.3% (notional rate − actual rate)
  • $10,000 outstanding loan amount (the amount outstanding on 1 July 2017)
  • $10,000 × 7.3% = $730 (interim value of the loan)
  • (52 × $730) ÷ 52 = $730.00 (value of the loan fringe benefit)

Act reference: SSAct section 1157Q Value of loan fringe benefits

Last reviewed: 6 May 2019