The Forgotten Benefit

The Age

Sunday October 22, 1995

MICHAEL LAURENCE

REMUNERATION experts suspect that packaged investment loans are perhaps the most overlooked executive benefit because of a misunderstanding about their tax treatment.

There is a general misconception that packaged investment loans are taxed identically to packaged non-investment loans that have been taken to, say, buy a home. However, investment loans are exempt from FBT whereas non-investment loans are not.

As discussed in the feature on Money Extra page 1, packaged investment loans provide executives with a valuable cashflow advantage. Borrowers effectively make their interest payments from pre-tax rather than after-tax salary.

Take the example of an executive who wants a $200,000 interest- only loan to buy an investment property or a share portfolio.

The annual interest is, say, 10 per cent or $20,000. If the executive pays the interest from after-tax salary rather than including the payments in a package, it means waiting until after the end of the tax year before claiming a tax deduction for the $20,000. The wait for a tax deduction often causes cash-flow difficulties for investors, particularly those who have negatively geared their investments.

As packaged investment loans are exempt from FBT, executives cannot claim the usual tax deductions for interest. In a way, these executives have had their tax deductions in advance.

© 1995 The Age

Back to News Index | Back to Home