At a glance - Tax treatment of benefits relating to loans
| Nature |
Taxable/Not taxable |
| 1 |
Interest benefits arising from interest-free or subsidised interest loans, e.g. housing loans, vehicle loans, computer loans and personal loans |
|
| a) Employer provides the loan directly to the employee |
Not taxable if the scheme is available to all employees.
Employees must not have substantial shareholdings, or control or influence over the company. |
| b) Employer or employee obtains a loan from a financial institution and employer pays the interest payment |
Taxable |
| 2 |
Interest benefits on loans to company directors |
Taxable
More information available |
| 3 |
Waiver of principal sum |
Amount waived is taxable |
Interest benefits on loans to company directors
Q1 Why are the benefits from the loans taxable?
The directors derive a benefit from such loans. As the Income Tax Act regards company directors as employees, the benefits from interest-free/subsidised loans are taxable as employment benefits.
Q2 How do I compute the interest benefits?
The value of interest benefits is computed based on prime interest rate.
For simplicity, IRAS may accept computation based on the amount of loan outstanding as at 31 December of each year multiplied by the average prime lending rate for that year.
If the loan were taken for less than one calendar year, the interest benefits would be computed according to the number of months in that year for which the loans remain outstanding.
Example illustrating the computation of the taxable benefit
A company director has been provided with an interest-free loan of $100,000 from March 2009 to October 2011, the amount of interest benefit for each Year of Assessment would be as follows:
| Year of Assessment |
Oustanding Loan |
Average Prime Lending Rate (%) |
Amount of Interest Benefit |
2010
|
$100,000
|
5.38
|
$100,000 x 5.38% x 10/12 = $4,483 |
2011
|
$100,000
|
5.38
|
$100,000 x 5.38% = $5,380 |
2012
|
$100,000
|
5.38
|
$100,000 x 5.38% x 10/12 = $4,483 |
Information on prime lending rates is available on the MAS website. For your convenience, IRAS has computed the average prime lending rates based on the information found on the MAS website as follows:
| Year |
Average prime lending rate (%) |
| 2006 |
5.33 |
| 2007 |
5.33 |
| 2008 |
5.38 |
| 2009 |
5.38 |
| 2010 |
5.38 |
| 2011 |
5.38 |
| 2012 |
5.38 |