Employer Owned Policies

Premiums

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;

OR

• the policy is a term policy or personal accident policy;

OR

• 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

As from 1 March 2012, any premium paid by an employer to any insurer under an employer-owned insurance policy (Group life or disability plan) directly or indirectly, for the benefit of the employee, spouse, child, dependant or nominee will be taxed in the hands of the employee as a fringe benefit.  The premium may, however, qualify as an income protection insurance contribution deduction by die employee.  If the employer makes a lump sum payment for all employees the fringe benefit is determined in accordance with a formula, which will have effect of apportionment amongst all employees concerned

Proceeds

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.

Loans

Policy loans from the insurer are also taxable if premiums are tax deductible.

Termination Lump Sum from Employer

Employer

Tax deductible for the employer if incurred in the production of income, as evidenced by the payment over to the employee in terms of:

• a service agreement; or
• established employer practice

Employee

As from 1 March 2011, employer provided severance payments for reasons of age, ill health and retrenchment are aligned with the taxation of lump sum benefits, including the R315 000 (2011:R300 000) exemption.  This exemption does not apply to directors/membersif they at any time held an interest of more than 5% in the entity

Prior to 1 March 2011, a once off exemption of R30 00 applied where an employee had reached the age of 55 or the termination of services was due to ill helath or the employee was retrenched because of the amployer had ceased to operate or because of a reduction in personnel.