EXPLANATORY STATEMENT
SOCIAL SECURITY (LOAN FRINGE BENEFITS) (MARKET RATE OF INTEREST) DETERMINATION NO. 1
An amendment to the Social Security Act 1991 (the Act) made by the Social Security Legislation Amendment Act (No. 1) 1995 (the amending Act) related to loan fringe benefits. The amendment, contained in Schedule 15 to the amending Act, raised the notional interest rates used in the valuation of a loan fringe benefit to current market rates and set in place a mechanism to keep those rates in line with market rates each tax year.
The new mechanism sets the notional interest rates for each tax year by selecting the lowest rates available on 1 April in the preceding tax year in each of two categories of loan (housing loans and other loans) from any one of four major banks specified by the Minister for the purpose.
This determination is to specify the four banks for this purpose. The four banks are:
the Commonwealth Bank of Australia;
the National Australia Bank Limited;
the Westpac Banking Corporation; and
the Australia and New Zealand Banking Group Limited.
The lowest rate available from any of these banks on 1 April 1995 was 10.5% for a housing loan and 12.75% for any other loan. These are the rates that will form the "market rate of interest" and therefore the notional rate of interest from the commencement of the amendment (29 September 1995) for the balance of the 1995/96 tax year. They are also the rates already specified by the Minister under the previous version of the legislation in his Social Security (Loan Fringe Benefits Valuation) Determination No. 1 that applies from the commencement of the 1995/96 tax year.
Therefore, this determination provides a consistent link between the rates determined to apply for the 1995/96 tax year under the previous version of the legislation and the new mechanism set up by the amending Act to set the rates in future.