Companies that have in place long-term insurance cover to protect their profit margins against the loss of key employees and directors due to death, illness or disability should seek urgent tax advice to ensure they comply with the 2010 Taxation Laws Amendment Act, which was gazetted last week.
The Act, which comes into effect on 1 January next year, gives effect to the 2010 Budget tax proposals.
The Amendment Act introduces radical changes to Section 11(w) of the Income Tax Act, which regulates the tax deductibility of premiums on employer owned policies.
Many employers use key person insurance to legitimately protect the business against loss of profits should a key employee or director die, become disabled or suffer from ill health. Long-term insurance plans have also been used to provide employees with deferred compensation, with the policy proceeds intended for the key employee being taxed at a lower tax rate.
While existing anti-avoidance laws have largely stopped practices whereby long-term insurance plans are used to provide deferred compensation at a tax mismatch, some remain. Often these anti-avoidance restrictions also undermined legitimate commercial practices such as the use of long-term insurance as collateral for debts owed.
The new Taxation Laws Amendment Act completely revises the requirements for deductible key person insurance schemes and removes the barriers to legitimate commercial practices.
The legislation will have a big impact on deferred compensation schemes as they will no longer be tax deductible for the employer after 1 January next year unless the employee is taxed on the premiums. Also affected are group life and disability schemes that fall outside the approved retirement fund environment and therefore receive different tax treatment.
It is therefore important that employers making use of long-term key person policies seek professional advice to ensure they have made the necessary adaptations come January 1. There are some parts of the new law that are not completely clear. ASISA is currently engaging with National Treasury and the South African Revenue Service to get clarity on these.
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What law made it illegal for insurance companies to do business over state lines? Or, at the least, roughly in what year was it made illegal for insurance companies to do so?.
I just got a new insurance and I declined ‘Uninsured Insurance’ cause it was about $50 extra. . . Now they sent me a letter stating that I must sign a ‘contract’ stating that I am declining this coverage because I live in California. . . So I am now kinda unsure if this is a coverage I should get or not. .
The type of car you drive will have a significant impact on the amount of money you are paying for your insurance.