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Income Tax Act 2007

General collection rules - Employment-related taxes - Value of fringe benefits

RD 34: Employment-related loans: value using prescribed interest rates

You could also call this:

“How employers calculate the value of loans given to employees”

When your employer gives you a loan as part of your job, they need to work out the value of this benefit. This section explains one way they can do this.

Your employer can use a special interest rate called the ‘prescribed interest rate’ to figure out the value of the loan benefit. They compare this prescribed interest to the actual interest you’re paying on the loan.

The value of the benefit is the difference between the prescribed interest and the actual interest you pay. If your loan is a special type of financial arrangement, your employer might use a different method to work out the benefit.

For most loans, the prescribed interest is calculated using the daily balance of your loan and the official prescribed interest rate. But for some older loans made before 1 April 1985, a different rate called the ‘non-concessionary rate’ is used. This rate is based on when you and your employer agreed to the loan.

If your employer wants to, they can choose a different way to value the loan benefit, which is explained in section RD 35.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1520028.

Topics:
Money and consumer rights > Taxes
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“Valuing employee loans using market interest rates”

Part R General collection rules
Employment-related taxes: Value of fringe benefits

RD 34Employment-related loans: value using prescribed interest rates

  1. This section applies when an employer provides a benefit to their employee in an employment-related loan and the employer does not choose to determine the value of the benefit under section RD 35.

  2. The value of the benefit in a period is the amount by which the prescribed interest on the loan is more than—

  3. the amount of interest that accrued on the loan in the period; or
    1. when the loan is a financial arrangement and it is appropriate for the nature of the loan, the income that would have accrued to the employer’s benefit in the period as calculated under the yield to maturity method.

      1. For the purposes of this section, prescribed interest means,—

      2. except as provided in paragraph (b), the amount of interest that would have accrued on the loan during the quarter or tax year had the interest been calculated on the daily balance of that loan at the prescribed rate of interest:
        1. for loans made on or before 31 March 1985, the interest on which is not subject to review, the amount of interest that would have accrued on the loan during the quarter or tax year had the interest been calculated on the daily balance of the loan at the non-concessionary rate of interest for—
          1. the tax year in which the agreement to make the loan was signed; or
            1. if the agreement was not in writing, the year in which the loan was agreed to by all parties.

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