You face pay­ing more tax on em­ployee as­sur­ance ben­e­fits

Changes to the In­come Tax Act clear up some con­fu­sion about how you are taxed when your em­ployer pays for your group life cover on top of your salary. Laura du Preez re­ports

Weekend Argus (Saturday Edition) - - GOODFARE -

Changes to the In­come Tax Act that take ef­fect from March next year could again have reper­cus­sions for you, as an em­ployee, if your em­ployer pays for your group life cover, in­come pro­tec­tion cover or funeral poli­cies in what is known as an un­ap­proved group risk ben­e­fit scheme.

The changes could af­fect the amount of tax you pay or could see your em­ployer re­struc­tur­ing your as­sur­ance ben­e­fits.

Amend­ments to the In­come Tax Act that change how these poli­cies are taxed were in­tro­duced in March this year, but the changes had some un­in­tended con­se­quences.

As a re­sult, the Tax­a­tion Laws Amend­ment Bill, which has passed through Par­lia­ment and is ex­pected to be pro­mul­gated be­fore the end of this year, ef­fec­tively re­peals the changes made last year and in­tro­duces new ones as of March 1 next year.

Hugh Hack­ing, the head of re­tire­ment fund so­lu­tions at Old Mu­tual Cor­po­rate, says that if the tax changes af­fect you, the in­creased tax you will pay is likely to be small rel­a­tive to your cur­rent tax li­a­bil­ity, un­less you are a high­in­come earner.

Em­ploy­ers will prob­a­bly need to take tax ad­vice to en­sure that they have struc­tured your as­sur­ance ben­e­fits cor­rectly, and some may use the op­por­tu­nity to re­struc­ture your ben­e­fits, Hack­ing says.

If that is the case, you may need some ad­vice to en­sure that you are not left worse off.

The changes should not af­fect you if you and your em­ployer con­trib­ute to your re­tire­ment fund and if your fund pays the pre­mi­ums for a group life pol­icy on be­half of the mem­bers (an ap­proved group risk ben­e­fit scheme – see “Types of ben­e­fits your em­ployer may of­fer”, right).

How­ever, if your em­ployer pays the pre­mi­ums on a group life pol­icy di­rectly to an in­surer on your be­half, this is known as an un­ap­proved group risk ben­e­fit scheme.

If your em­ployer pays the pre­mi­ums on your be­half as an em­ployee ben­e­fit – that is, with­out re­duc­ing your salary in any way – and you are not al­ready be­ing taxed on this ben­e­fit, it will be­come a tax­able fringe ben­e­fit on March 1 next year, when the lat­est changes to the In­come Tax Act be­come ef­fec­tive.

The changes could af­fect the tax you pay in one of three ways:

BEN­E­FITS TAX ON PRE­MI­UMS PAID

are en­ti­tled to deduct the pre­mi­ums from your tax­able in­come.

If your em­ployer pays the pre­mi­ums for an in­come pro­tec­tion pol­icy on your be­half, this is deemed to be a tax­able fringe ben­e­fit, but the pre­mi­ums will be tax de­ductible for you af­ter March 1 next year.

This means the fringe ben­e­fit that is added to your tax­able in­come will be off­set by the de­duc­tion al­lowed against your in­come.

You do not qual­ify for a de­duc­tion on the pre­mi­ums that be­come tax­able from March next year if your em­ployer pays to a group

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.