New fringe benefit for employees

For many years, employers were allowed to deduct their contributions made to employee disability or death policies on behalf of their employees, with no matching accounting for a fringe benefit in the hands of their employees. This changed on 1 January this year.

These (long-term insurance) policies have been provided by means of ‘approved’ or ‘unapproved’ plans, as defined by the South African Revenue Service (SARS), and have been structured in the following ways:

• proceeds can be paid directly to the employees, or

• proceeds can be paid directly to the employer, with a side arrangement existing between employer and employee whereby the employer undertakes to pay proceeds over to the employee.

From 1 January 2011 the following rules apply:

Should an employer enter into a group life or group disability plan for the direct or indirect benefit of his employees or their beneficiaries (i.e. the employees are the beneficiaries of the policies), the employer will be allowed a deduction of said contributions only if these premiums give rise to a simultaneous fringe benefit inclusion for the employees.

Should the employer be the beneficiary of the policies and there is a side arrangement to pay the employee the proceeds, the tax treatment will be similar to that in the aforementioned paragraph. The value of the said fringe benefit in both cases will be equal to the premiums paid by the employer.

For further information, contact Jonathan Coetzee, Tenk Loubser & Associates in Somerset West, tel. 021 852 0382 or e-mail jonathanc@exceedsw.co.za