Section RD 35 — Income Tax Act 2007: Employment-related loans: value using market interest rates

RD 35 Employment-related loans: value using market interest rates Choosing to use market interest rate (1) An employer who is in the business of lending money to the public may choose to value a benefit provided to their employee in an employment-related loan using the market interest on the loan. Value of benefit (2) The value of the benefit referred to in subsection (1) in a period is the amount by which the market interest on the loan is more than— (a) the amount of interest that accrued on the loan in the period; or (b) when the loan is a financial arrangement and it is appropriate having regard to 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. Using method for 2 income years (3) Having made an election under subsection (1), the employer must use the method for the income year to which the election relates and for the next income year. Notifying Commissioner of change to method (4) An employer may not change the method of calculating the value of the benefit for an income year unless the employer notifies the Commissioner of the proposed change at least 1 year before the start of the income year in which the change is to occur. Market interest (5) In this section, market interest means the amount of interest calculated at the interest rate that would apply to a borrower belonging to a group of persons to whom a loan of the kind provided to the employee is offered when the group meets the following requirements: (a) the group has a comparable credit risk to the group to which the employee belongs; and (b) membership of the group arises from a factor or factors that do not include a connection between a member and the employer; and (c) the group is sufficient in number to ensure a transaction on an arm’s-length basis. Calculating amount of interest (6) For the purposes of subsection (5), the amount of interest is the amount accrued on the loan during the quarter or tax year calculated on the daily balance of the loan at the rate referred to in the subsection. Defined in this Act: amount , business , Commissioner , employee , employer , employment-related loan , financial arrangement , group of persons , income , income year , interest , market interest , notify , quarter , tax year , Compare: 2004 No 35 s ND 1DB