The benefit an employee enjoys by paying a lower-than-commercial interest rate on a loan received from his employer is valued at nil for payroll tax purposes if the loan is a loan:
- whose interest is deductible with the employee as home equity interest;
- with which a bicycle, electric bicycle or electric scooter has been purchased.
Already during the discussion of the 2015 Tax Plan, the State Secretary of Finance announced that the nil valuation of employee loans for owner-occupied houses would be adjusted. That adjustment is part of the recently submitted Fiscal Collective Act 2015 bill and means that the nil valuation will lapse. Moreover, the interest benefit cannot be designated as a final taxable item, in other words: the benefit cannot be included in the WKR lump sum (of 1.2% of the wage bill). The interest benefit must be valued at fair value and taxed for that value with payroll taxes. On the other hand, the employee may deduct the taxed benefit in his income tax return as owner-occupied home interest.
Why this whole exercise? Since 2013, the deduction of home interest in the highest tax bracket cannot be claimed at the rate of 52% applicable in that tax bracket. In 2013, 0.5% and in 2014 1.0% of the portion of the deduction in the highest rate bracket must be added to income tax. In the coming years, this addition is increased annually until it reaches 14% (in 2041) and the deduction of owner-occupied home interest can only be claimed at a maximum rate of on balance: 38%. If the nil valuation of the interest benefit had been maintained, it would be securitised in payroll taxes at the rate of 52%. The resulting disparity compared to the deduction of interest in income tax is seen as undesirable.
The nil valuation of employee loans for owner-occupied housing will expire from 1 January 2016. The biggest job for the employer is to determine what interest the employee would owe in economic terms. Perhaps further guidance on this will be provided during the discussion of the Fiscal Collective Act Bill 2015. It is allowed to spread the interest benefit equally over the return periods of the calendar year.