From July 2025, the Inland Revenue Department (IRD) has lowered the prescribed rate for low-interest employment-related loans from 7.38% to 6.67%. This change directly affects how Fringe Benefit Tax (FBT) is calculated in New Zealand. For employers providing staff loans and employees who receive them, the adjustment means a noticeable reduction in taxable benefits.
This article explains what the rate drop means, how it affects payroll systems, and what steps both employers and employees should take. Understanding the update is key to ensuring compliance while maximising savings opportunities.
Understanding the FBT Loan Rate Adjustment
What Is the FBT Prescribed Rate?
The prescribed rate is the benchmark interest rate set by Inland Revenue to calculate taxable fringe benefits when employers provide staff loans at below-market rates. If the rate charged by the employer is lower than the prescribed rate, the difference is subject to FBT. With the new reduction to 6.67%, the taxable margin shrinks, reducing overall FBT liability. Deloitte New Zealand highlighted this as one of the most practical tax reliefs for businesses in 2025.
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- Previous rate (until 30 June 2025): 7.38%
- New rate (from 1 July 2025): 6.67%
- Applies to all low-interest employment-related loans
Why the Rate Was Lowered
The rate adjustment reflects ongoing economic conditions, particularly falling wholesale interest rates and inflationary pressures stabilising. By reducing the prescribed rate, IRD ensures the FBT system remains fair and aligned with market lending costs. For employers offering housing or education loans, this change is especially relevant.
π‘ What Does This Mean for Employers?
Employers will benefit from a lower FBT bill. For instance, if an organisation provided a $50,000 housing loan at 2% interest, under the previous 7.38% rate the taxable benefit was 5.38% ($2,690). With the new 6.67% rate, the taxable benefit drops to 4.67% ($2,335). This translates to immediate savings when FBT returns are filed.
| Loan Amount | Employer Interest Rate | FBT Calculation (Old 7.38%) | FBT Calculation (New 6.67%) |
|---|---|---|---|
| $50,000 | 2% | $2,690 taxable benefit | $2,335 taxable benefit |
How Employees Benefit from the Change
Employees also gain indirectly. Although the FBT is paid by the employer, many firms factor the cost into overall remuneration policies. With lower FBT expenses, companies may be more willing to extend or expand low-interest staff loan programmes. This can make education, housing, or relocation support loans more accessible to employees.
- Reduced employer tax burden may encourage more loan schemes.
- Employees enjoy continued access to below-market financing.
- Improved affordability of housing or tuition loans.
π Payroll and Compliance Considerations
Payroll systems must be updated to reflect the new prescribed rate from 1 July 2025 onwards. Failure to adjust could lead to overpayment or underpayment of FBT. Businesses using platforms like Xero and MYOB should confirm that their systems automatically update the rate or manually make corrections. Accountants recommend conducting a mid-year review to ensure accuracy.
Risks and Things to Watch Out For
Despite the benefits, employers must carefully document all staff loan agreements and apply the new rate correctly. The IRD has increased compliance reviews in recent years, so proper reporting is essential. Misreporting fringe benefits can trigger penalties and back payments. Employees should also be aware that personal tax positions are unaffectedβFBT remains an employer obligation.
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Summary of Key Updates
- FBT prescribed rate reduced from 7.38% to 6.67% starting 1 July 2025.
- Employers see reduced taxable fringe benefits on staff loans.
- Employees may gain access to more low-interest loan schemes.
- Payroll systems must be updated immediately to stay compliant.
FAQ: FBT Prescribed Loan Rate 2025
What is the new prescribed rate?
The rate is 6.67%, effective from 1 July 2025, down from the previous 7.38%.
Who sets the prescribed rate?
The rate is set by New Zealand Inland Revenue to reflect market lending conditions.
Does this apply to all loans?
It applies to all employment-related low-interest loans offered by employers to staff, such as housing, education, or relocation loans.
How does it affect employees directly?
Employees do not pay FBT themselves, but they may gain from increased access to staff loan schemes since employers face lower costs.
Where can I find Verified details?
The latest updates are available on the IRD website and professional tax advisories like Deloitte and KPMG.
Summary
- The FBT prescribed loan rate cut benefits both employers and employees.
- Accurate payroll updates are critical from July 2025 onwards.
- Lower taxable benefits mean real cost savings for businesses.