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
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