Posted on December 15th, 2010 in Industry News
Employers often provide disability benefits by way of an insured Disability Income Scheme. also referred to as Permanent Health Insurance Scheme or Income Continuation Plan. The premiums for these insurance policies are normally payable in full by the employer, with the understanding that this is a tax deductible expense.
Recent changes to the Income Tax Act in terms of the Taxation Laws Amendment Act (TLAA), gazetted on 3rd November 2010, may have inadvertently affected the tax deductibility of the premiums payable by the employer. We write “inadvertently” as the TLAA, we believe, was written to prevent perceived tax abuse through other employer owned insurance policies, for example deferred compensation policies. We do not believe that the intention of National Treasury was to interfere with the much needed provision of disability income benefits by employers for their employees.
The Industry is currently in discussions with National Treasury to allow for employers to retain the tax deductible expense associated with the provision of disability insurance cover to employees. If this is accepted by National Treasury, this should result in a backdated reversal of this part of the TLAA (the TLAA change is effective from 1 January 2011).
If Treasury is unwilling to reinstate the concession on disability income insurance premiums, it will become necessary for employers to restructure the premium payments as an employee liability. Simplistically, this will have no additional tax or cost implications to either party (employer and employee) but may require a fairly complex restructuring of the insurance policy wording.
At this stage we are hopeful that National Treasury will listen to reason and agree to the required concession on premiums payable to Disability Income Schemes. However, if this is not the case, employers will be required to restructure their Disability Income Schemes as soon as possible after 1st January 2011. We will be following the negotiations closely and will provide a status update shortly.
Please do not hesitate to contact us if you would like further information on this subject.
