The low-interest loan fringe benefit arises when an employer lends an employee money at no interest, or at a rate below the SARS official rate. The interest saved is treated as a taxable benefit.
What it means
If an employer lends at less than the official rate, the employee gets value equal to the interest they did not have to pay. SARS taxes that gap: the benefit is the difference between interest at the official rate and the interest actually charged. Small or specific loans, such as a modest amount, can be exempt.
Where it fits in
The benefit is a fringe-benefit component added to the PAYE base for the period, recalculated as the loan balance and the official rate change. It is reported on the IRP5 under the relevant source code.
Key rules
- Taxes the interest saved on an employer loan below the official rate.
- Benefit equals interest at the official rate less interest actually charged.
- Certain small or specific-purpose loans are exempt.
- A fringe-benefit component included in remuneration for PAYE.
