T. Adams commenced employment at Moana Sales Ltd. on February 1, 2020. He had lived in an apartment until May 2020, at which time he purchased a new house. Under the terms of his employment, he received a housing loan on May 1, 2020 of $80,000 at a rate of 2 percent. He pays the interest on the loan on a monthly basis. Assume the 2020 prescribed interest rates applicable to employee loans are as follows: What is T. Adams' taxable benefit on the above loan for 2020?

Question

T. Adams commenced employment at Moana Sales Ltd. on February 1, 2020. He had lived in an apartment until May 2020, at which time he purchased a new house. Under the terms of his employment, he received a housing loan on May 1, 2020 of $80,000 at a rate of 2 percent. He pays the interest on the loan on a monthly basis. Assume the 2020 prescribed interest rates applicable to employee loans are as follows:  What is T. Adams' taxable benefit on the above loan for 2020?

Quizplus · Accepted Answer

To determine the taxable benefit on the housing loan provided by the employer, we need to calculate the interest that T. Adams would have paid if he had obtained the loan at the prescribed rate (2%) instead of the lower rate (in this case, it's 1%).

The calculation would be:
Interest that T. Adams would have paid at the prescribed rate = prescribed rate x loan amount x number of months outstanding / 12 
= 2% x $80,000 x 8 / 12
= $1,066.67

Interest that T. Adams actually paid = 1% x $80,000 x 8 / 12 
= $533.33

Taxable benefit = interest that T. Adams would have paid at the prescribed rate - interest that T. Adams actually paid 
= $1,066.67 - $533.33
= $533.34

Therefore, T. Adams' taxable benefit on the housing loan for 2020 is $670.68 (assuming he paid interest on a monthly basis from May 2020 to December 2020).

T Adams Commenced Employment at Moana Sales Ltd