Currently, the interest benefit on employee loans, which qualify as owner-occupied housing loans with the employee, is valued at nil. If the interest paid by the employee is taxed with wage tax, it may be deducted as owner-occupied home interest in the employee's income tax return. Until 1 January 2014, the income tax payable was equal to the income tax receivable. To avoid the burden associated with the addition (payroll tax) and deduction (income tax), there is the nil valuation.
With effect from 1 January 2014, owner-occupied home interest is no longer fully deductible in income tax. To the extent the deduction is charged to the 4th income tax bracket (where the rate is 52%), the tax benefit is no longer 52%. In 2014, the tax benefit is: 51.5%, in 2015: 51%. And in subsequent years, the rate of deduction is reduced by 0.5% point each year until it is still 38% in 2041. If the interest benefit on employee loans remained valued at zero, these employees would enjoy an advantage over people who do not borrow interest-free from their employer.
To avoid this, from 1 January 2016, the interest benefit must be included in the employee's salary as wage in kind and taxed with payroll tax. The benefit so taxed may then be deducted by the employee in his income tax return. State secretary Wiebes of Finance has indicated in a draft of the implementation rules that in case of varying interest during the year, an estimate of that interest may be assumed, followed by a settlement at the end of the year (or at the end of employment). This comes into play when a variable interest rate is used and when the owner-occupied home loan is repaid on an annuity basis.
The letter also indicates that most probably the payroll tax on interest benefits of ex-employees (the interest rebate then continues after termination of employment) can be shifted to the pension provider. The ex-employee will then not have to remain on the ex-employer's payroll only for the levy on the interest benefit.
The trickiest element, of course, is how to determine the amount of the interest rebate. On this, Wiebes has previously indicated that, in his opinion, there are sufficient handles for this by comparing with interest rates of independent providers.