Interest-free / subsidised loans to company directors

Where an employer provides an employee with interest-free/subsidised loans, a taxable benefit is derived by the employee. However, as an administrative concession, IRAS is prepared to waive the taxability only if the employee does not have substantial shareholding in or control/influence over the company.

An employee is defined under the Income Tax Act to include a director of a company. However, a director would likely no qualify for the administrative concession as he would generally be regarded to have control or influence over the company. Accordingly, the benefits derived from interes-free/subsidised loans made to the directors of a company are taxable as employment benefits.

The value of the interest benefit is calculated based on the average prime lending rate for the year. For simplicity purposes, the interest benefit for any year is calculated by applying the average prime lending rate for the year to the amount of loans outstanding as at 31 December of that year. For outstanding loans of less than one calendar year, the interest benefit is computed according to the number of months in that year for which the loans remain outstanding.

For subsidised loans, any interest payable by the directors should be deducted from the value of interest benefits as computed above to arrive at the taxable interest benefits.

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Updated January 2006