# Example of calculating the taxable benefit

## Example

Joshua is your employee. He borrowed \$150,000 from you at the beginning of the year. The prescribed rate of interest for the loan is 3% for the first quarter, 4% for the second and third quarters, and 5% for the fourth quarter. Joshua paid you \$2,000 interest on the loan no later than 30 days after the end of the year. During the year, a company related to you paid \$1,000 interest on the loan for Joshua. Before the end of the same year, Joshua repaid the \$1,000 to the company.

Calculate the benefit to include in his income as follows:

Calculation of interest on loan amount

Prescribed interest rate Loan amount Part of year Interest for the quarter
3% \$150,000 1/4 \$1,125
4% \$150,000 1/4 \$1,500
4% \$150,000 1/4 \$1,500
5% \$150,000 1/4 \$1,875

Total interest for the quarters .................................................................................    \$6,000

Plus

Amount paid by a third party ..................................................................................    \$1,000

Minus

Interest paid (\$2,000 + \$1,000) ................................................................................    \$3,000

Amount Joshua repaid ..............................................................................................    \$1,000

Equals

Joshua's taxable benefit ...................................................................................    \$3,000