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Answer :
QP Pty Ltd needs to determine the taxable value of the fringe benefit of the interest-free loan by calculating the interest Gordon would have paid at the benchmark interest rate, apply the appropriate gross-up rate, and then multiply by the FBT rate.
The interest-free loan is considered a fringe benefit and subject to FBT which QP Pty Ltd is responsible for paying.
The fringe benefits tax (FBT) payable by QP Pty Ltd for the interest-free loan provided to Gordon can be calculated by finding the 'benchmark interest rate.'
The benchmark interest rate is set by the Australian Taxation Office (ATO) each year. For the FBT year ended 31 March 2020, we will use the prevailing rate from the 2019-20 FBT year, which is applied to the $500,000 loan to calculate the FBT liability.
To calculate the taxable value of the fringe benefit, you would subtract any employee contributions (none mentioned in the question) from the amount of interest that would have been payable if the loan was at the benchmark interest rate.
Since QP Pty Ltd is not entitled to GST credits, the gross-up rate to be applied is the lower gross-up rate. Finally, this grossed-up taxable value would be multiplied by the FBT rate to determine the FBT payable, which must be rounded to the nearest dollar.
To provide the exact FBT payable, you would apply the formula: (Notional Interest x Gross-up rate) x FBT rate. Notional interest is the amount Gordon would have paid on the $500,000 loan at the benchmark interest rate.
The Gross-up rate is used because the benefit is provided tax-free to the employee, and the FBT is paid on a pre-tax basis by the employer. Since employee contributions are $0, and assuming a benchmark interest of 5.37% for 2019-20, notional interest would be $500,000 x 5.37%.
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