3EXEMPTIONS

Weekend Argus (Saturday Edition) - - GOODFARE -

scheme of­fer­ing life and lump-sum dis­abil­ity ben­e­fits.

FROM TAX FOR THE PRO­CEEDS

The changes to the In­come Tax Act that will be in­tro­duced next year are de­signed to en­sure that if you con­trib­ute to an as­sur­ance pol­icy us­ing af­ter-tax in­come and with­out a tax de­duc­tion, the pro­ceeds of the pol­icy paid to you or your de­pen­dants will be tax-free.

How­ever, if your pre­mi­ums were funded with be­fore- tax con­tri­bu­tions or with a tax de­duc­tion, the pol­icy pro­ceeds will be tax­able.

This means that where your con­tri­bu­tions to an in­come pro­tec­tion pol­icy are tax de­ductible, the pro­ceeds – the monthly in­come you re­ceive if you are dis­abled – will be tax­able.

If your em­ployer pays con­tri­bu­tions to an un­ap­proved group life scheme as a ben­e­fit for you, it was un­clear af­ter last year’s changes whether or not the pro­ceeds of the group life pol­icy – when and if they were paid to you – would be tax-free.

The changes to the In­come Tax Act that take ef­fect on March 1 make it clear that if your em­ployer pays the pol­icy pre­mi­ums and you pay fringe ben­e­fits tax on these pre­mi­ums, the pro­ceeds will be tax-free.

Daf­fue says where the pro­ceeds of a pol­icy are paid out first to an em­ployer and then to the em­ployee’s ben­e­fi­cia­ries or de­ceased es­tate be­fore March 1 next year, the pro­ceeds will in all like­li­hood be taxed in the hands of the de­ceased’s es­tate.

How­ever, he says, if the pol­icy pro­vided for a pay­ment di­rectly to a de­ceased em­ployee’s es­tate or ben­e­fi­cia­ries, the pro­ceeds would be tax-free.

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