Employer Owned Policies
Tax deductible, provided:
- the employer actually paid the premiums; and
- the policy was on the life of an employer at the time of paying the premiums; and
- the policy was the property of the employer at the time of paying the premiums; and
- only the employer would have been entitled to the proceeds that were or could have become payable under the said policy; and
- no loan by third party secured by the policy is outstanding except in limited cases; and
- the policy was accepted before 1 June 1982 or proposed for before 25 May 1982 and accepted by 21 June 1982. In such cases the deduction is limited to the premiums as payable in terms of the policy conditions as at 31 May 1982;
- the policy is a term policy or personal accident policy;
- the policy conforms to the State President’s Regulations, premiums limited to 10% of the employee’s or director’s remunerations. To conform to the State President’s Regulations, the policy contract must have:
- a prescribed minimum element of life cover (lesser of the maturity term or 20 year x 80% of lowest net premium);
- only one life assured;
- regular premium payment periods
Premiums are not taxable in the employee’s hands unless he or she is given a vested right to the proceeds under all circumstances.
Any premiums disallowed as a deduction may be offset against the taxable proceeds.
If no premium was ever tax deductible, the proceeds will normally be tax free.
Policy loans from the insurer are also taxable if premiums are tax deductible.
Tax deductible for the employer if incurred in the production of income, as evidenced by payment over to the employee in terms of:
- a service agreement; or
- established employer practice
Maximum of R30 000 tax free if:
- the age of 55 has been reached (unless earlier retirement is due to ill health);
- retrenched on or after 1 March 2002,irrespective of age.
Balance exceeding R30 000:
- up to 3 times the employee’s earnings over the 3 previous years is taxed at average rates of tax;
Where the employee does not qualify, the full retirement gratuity or cession value of any policy will be taxed as income.
Gratuities in excess of the tax-free limit paid to employees who are retrenched may be taxed at the employee’s who are retrenched may be taxed at the employee’s average rate of tax.