Low-Interest Employee Loan Fringe Benefit in South Africa

If your employer lends you money at no interest, or at a rate below the SARS official rate of interest, the interest you did not pay is a taxable fringe benefit. The benefit equals the interest that would have accrued at the official rate less any interest you actually paid, and it is added to your income and taxed at your marginal rate. The official rate of interest is the repurchase rate plus 1%, which put it at 8.00% from 1 June 2026. Small, short-term staff loans of R3,000 or less are ignored.

The rule sits in paragraph 11 of the Seventh Schedule to the Income Tax Act. It exists because an interest-free loan is a real benefit: the employer is giving up interest it could have earned, and that saving to you is a form of untaxed pay unless it is brought to tax.

How the benefit is measured

The taxable value is the gap between two interest figures:

benefit = interest at the official rate - interest you actually paid

The official rate is defined in the Income Tax Act as the repo rate plus one percentage point, and it resets from the first day of the month after the Reserve Bank changes the repo rate. Because it moves, you apply the rate in force for each month the loan is outstanding. Across the 2026 tax year it ran at 8.50%, then 8.25% from June 2025, 8.00% from September 2025 and 7.75% from December 2025. From 1 June 2026 it is 8.00% again.

A worked example

Nomsa's employer lends her R300,000, interest free, to consolidate some debt. It is not a study loan and not a qualifying home loan. The loan is outstanding for a full year while the official rate sits at 8.00%.

Interest at the official rate = R300,000 x 8.00% = R24,000 Interest Nomsa paid = R0 Taxable fringe benefit = R24,000 - R0 = R24,000

That R24,000 is added to her taxable income for the year. If she is in the 31% bracket for 2026, the tax on the benefit is about R24,000 x 31% = R7,440.

Now suppose the employer charges her 3% instead of nothing:

Interest at the official rate = R300,000 x 8.00% = R24,000 Interest Nomsa paid = R300,000 x 3% = R9,000 Taxable fringe benefit = R24,000 - R9,000 = R15,000

Charging some interest narrows the gap, so the benefit falls to R15,000 and the tax to about R4,650 at 31%. Because the taxable amount is the shortfall against the official rate, it keeps shrinking as the interest you pay rises towards that rate, and reaches nil once you pay the official rate in full.

The exclusions that carry no value

Not every cheap loan is taxed. Three cases carry no value:

• Casual staff loans up to R3,000. A debt, or the total of debts, that does not exceed R3,000 at any time is ignored, as long as these are genuinely short-term advances granted at irregular intervals. A standing loan that is simply kept under R3,000 is not covered.
• A loan for the employee's own studies. A loan to enable you to further your own studies carries no value.
• A low-cost housing loan. From 1 March 2019, a loan of up to R450,000 to buy a home worth up to R650,000 carries no value, provided your remuneration proxy is R360,000 or less and you are not a connected person to the employer.

Outside these, the official-rate test applies.

What shows up on your side

The loan does not appear on your payslip as income, but the fringe benefit does: your employer adds the interest shortfall to your remuneration and runs PAYE on it, month by month, at the official rate then in force. If you want to check the maths, work out the interest the loan would carry at the official rate for the period, subtract anything you paid, and that difference is what gets taxed. To see the effect on your total tax, add the benefit as extra income in the basic income tax calculator. If your employer instead lends you the use of a car rather than cash, the valuation runs off the vehicle's cost, which the article on the company car fringe benefit sets out, and the guide on how your bonus is taxed covers how these added amounts stack onto your salary.