A number of Employers have, for several years, been contributing towards either an employee death or an employee disability policy on behalf of their employees (long-term insurance policies). The aforementioned policies were provided either by means of ‘approved’ plans or ‘unapproved’ plans, as defined by the South African Revenue Service (SARS).
These policies can be structured in the following ways:
- 1. The proceeds can be paid directly to the employees
- 2. The proceeds can be paid directly to the employer, with a side arrangement existing between
- 3. The employer and employee whereby the employer will pay proceeds over to the employee
For many years, these contributions to policies on behalf of employees were allowed as a deduction for the employer, with no matching accounting for a fringe benefit in the hands of the employee.
With effect 1 JANUARY 2011, these rules have however changed.
- • If an employer enters into a group life or group disability plan for the direct or indirect benefit of the employees or their beneficiaries (the employees are the beneficiaries of the policies), the employer will only be allowed a deduction of said contributions if these premiums give rise to a simultaneous fringe benefit inclusion for the employees.
- • If the employer is the beneficiary of the said policy and there is a side arrangement to repay the proceeds to the employee, the tax treatment will be similar to the aforementioned paragraph. The value of the said fringe benefit in both options will be equal to the premiums paid by the employer.