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 general comments and Q&A

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Crest



Posts : 18
Join date : 2011-03-30
Location : Centurion

PostSubject: Re: general comments and Q&A   Mon Apr 04, 2011 10:28 am

Admin wrote:
Thank you for this info.When I add a investment premium to a new policy will sars not accept and will payment on claimstage be taxable.

After 1 January 2011 the premiums will only be deducible where the policy meets the requirements of the new section 11(w)(ii). In future, premiums on employer owned policies will only qualify for a tax deduction in two situations:
- Sec 11(w)(i): Where the employee is taxed on the premium, or
- Sec 11(w)(ii): Pure life cover policies where only the employer benefits.
Therefore, if you should add an investment premium to a new policy, it will not meet the requirements of sec 11(w)(ii)

Under the new regime the rule that where a pemium is deductible, the proceeds will be taxable still applies in the case of:
- old sec 11(w) policies; and
- policies where the premiums are deductible or become deductible in terms of the new sec 11(w)(ii).
It apprears as though the proceeds of policies in respect of which the premiums are deductible under the new sec 11(w)(i) will be tax free provided that they accrue to the employee/director etc and not the employer.
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Location : Johannesburg

PostSubject: Impact of adding an investment portion   Mon Apr 04, 2011 9:09 am

Thank you for this info.When I add a investment premium to a new policy will sars not accept and will payment on claimstage be taxable.

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Crest



Posts : 18
Join date : 2011-03-30
Location : Centurion

PostSubject: Re: general comments and Q&A   Fri Apr 01, 2011 12:27 pm

Admin wrote:
Thanks for this but I wonder if you could clear something up for me.
I went to a Liberty presentation yesterday where we were told that it's definitely not business as usual and that, until such time as SARS makes a different ruling, the proceeds of company-owned, non-conforming policies will be taxed as income in the hands of the company - irrespective of whether or not they've been deducting the premiums. This may well change in the future but we're not there yet.
You say below that:

...it would be premature and not in the policyholders’ interest to make changes to key-man policies as a result of this amendment to the Income Tax Act.

I can't work this one out. Until there are further amendments, the proceeds of the KEYMAN or CONTINGENT LIABILITY policies I've sold are going to be reduced by 28% due to tax. If I just keep quiet about this it would seriously affect the financial planning I've done for my clients and leave me in a position where I can get done for bad advice. Why is it not in my clients' best interests for me to go around and increase the cover on these policies?

Please see the reply to a similar question under this topic where Vlok Symington (Comm of the SARS)replied to ASISA on 18th February with regards to key-person policies, as follows:
"We are not in support of amendments to policy contracts with the aim of circumventing the provisions of sec 11(w), causing the proceeds to become tax free. We recognise, however, that true key-person policies that were previously "non-conforming" and in respect of which no premiums were claimed as a tax deduction by anyone, should be treated differently for purposes of par. (m) of the definition of "gross income" in sec 1 of the Income Tax Act (the Act). We would therefore be proposing an amendment to the Act that will exempt from tax (or not include in gross income) the proceeds of a previously "non-conforming" key-person policy that was concluded prior to the promulgation date of the 2010 Taxation Laws Amendment Act. We will propose for this amendment to take effect from the commencement of years of assessment commencing on or after 1 January 2011 (i.e. the same as for sec 11(w)).
A suitable arrangement in terms of which an insurer can confirm the status of the policy to SARS needs to be developed and your suggestions in this regard would be welcomed.
We are not yet in a position to confirm similar treatment in respect of key-person policies concluded after the 2010 promulgation date or those that were ceded to another person. Further discussions with ASISA in this regard are required"
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Crest



Posts : 18
Join date : 2011-03-30
Location : Centurion

PostSubject: Re: general comments and Q&A   Fri Apr 01, 2011 12:18 pm

Admin wrote:
Many thanks fore sending this!

With reference to a recent FPI quarterly meeting, the following was also confirmed by Marius Botha:

The view that given the uncertainty and the recognition by SARS and the National Treasury that there is a problem, it would be premature and not in the policyholders’ interest to make changes to key-man policies, etc. as a result of the recent amendment to the Income Tax Act.

I therefore also agree that replacing a policy may be poor advice given that SARS intends to propose an alteration to the Act for policies entered into before 1 January 2011 (yet they have not confirmed as to when they will.

In addition this, there was also additional errata & it is best to wait until SARS amends the same & not to do anything until then.

Yet, unfortunately some opportunistic product providers have already made “add-on” benefits available to advisers / planners. This will however prove to be short sighted and not be in the client’s best interest.

I therefore congratulate Altrisk for taking this very ethical stance!


Thank you for your positive comment.
Vlok Symington (Comm of the SARS)replied to ASISA on 18th February with regards to key-person policies, as follows:
"We are not in support of amendments to policy contracts with the aim of circumventing the provisions of sec 11(w), causing the proceeds to become tax free. We recognise, however, that true key-person policies that were previously "non-conforming" and in respect of which no premiums were claimed as a tax deduction by anyone, should be treated differently for purposes of par. (m) of the definition of "gross income" in sec 1 of the Income Tax Act (the Act). We would therefore be proposing an amendment to the Act that will exempt from tax (or not include in gross income) the proceeds of a previously "non-conforming" key-person policy that was concluded prior to the promulgation date of the 2010 Taxation Laws Amendment Act. We will propose for this amendment to take effect from the commencement of years of assessment commencing on or after 1 January 2011 (i.e. the same as for sec 11(w)).
A suitable arrangement in terms of which an insurer can confirm the status of the policy to SARS needs to be developed and your suggestions in this regard would be welcomed.
We are not yet in a position to confirm similar treatment in respect of key-person policies concluded after the 2010 promulgation date or those that were ceded to another person. Further discussions with ASISA in this regard are required"


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PostSubject: Altrisk communication 28 March2011   Thu Mar 31, 2011 8:18 am

UPDATE: Taxation Laws Amendment Act 2010

 

Even though the new taxation changes have already come into effect (1 January 2011), there is still confusion and uncertainty regarding the interpretation and implementation of these changes.  

 

To recap, the changes made by the National Treasury relate to Section 11(w) of the Income Tax Act as well as to the definition of gross income.  These sections and definitions may affect:

·         The deductibility of premiums from taxable income, and

·         The taxation of the proceeds of the policy when it pays out.

 

ASISA, the National Treasury and SARS have met and corresponded since November last year on the problems associated with implementing some of these changes to the income tax legislation.

 

What were the changes again?

 

Prior to the changes, when premiums were paid by an employer for a key-man policy, the premiums were tax deductible if the policy met certain conditions that made it a conforming policy.  In many instances, however, it was preferable that the policy was considered non-conforming and therefore the premiums were not tax deductible and the proceeds not taxable.  Certain policyholder selected features (e.g. allowing the substitution of lives) of policy would cause a policy to be non-conforming.

 

The changes to section 11(w) of the Income Tax Act were to the rules on whether premiums for employer-owned policies were deductible from taxable income.  The new rules to qualify for deduction are:

·         only if the policy protects the company against any loss due to death, disablement or critical illness on the life of an employee or director, and

·         the policy is a risk policy with no cash or surrender value, and

·         the policy is not the property of anyone other than the company at the time of paying the premium, and

·         no amount under the policy will be paid over by the company to an employee/director/ connected person in relation to that employee/director, the estate of that person or any other person that is dependent on that employee or director.

 

This means that the change will do away with the conforming and non-conforming status of a policy and a policy’s premiums will now be either deductible in terms of section 11(w)(ii) or not deductible.  Where the premium is tax deductible the proceeds will be part of the gross income of the employer for income tax purposes.

 

Since this change applies to all policies, not just new policies, the status of an inforce policy may change and have significant consequences for the employer who had planned to receive a tax free amount on the death of an employee as he now has to pay tax on the proceeds.  In some instances it may be possible to increase the sum assured to compensate for this tax.  The cost to the employer will however be greater (the life assured is now older or may have suffered a health event) or the increase in cover may not be available.

 

Important:  What are the latest developments?

 

SARS does not support the artificial alteration of a policy to cause that policy to retain its non-tax deductible status.  One of the methods suggested by some insurers to maintain the non-tax deductible status is to add a small cash value to the policy – and it seems SARS has directed their comment at this proposed practice.

 

SARS, in a letter to ASISA dated 18 February 2011, has given some clarity but other issues remain unresolved.  According to the letter, SARS will propose an alteration to the Income Tax Act to preserve the non-tax deductible status of previously non-conforming policies entered into before 1 January 2011.  Further discussion is required to deal with policies:

·         entered into on or after 1 January 2011, and

·         those entered into before 1 January 2011 where the policy has been ceded to another party.

 

What does this mean for your current business?

 

Our view on the above is that given the uncertainty and the recognition by SARS and the National Treasury that there is a problem, it would be premature and not in the policyholders’ interest to make changes to key-man policies as a result of this amendment to the Income Tax Act.

 

Replacing a policy may be poor advice given that SARS intends to propose an alteration to the Act for policies entered into before 1 January 2011. It is still uncertain whether the new replacement policy will get the same concession.

 

We would like to remind you of the following:

·         Altrisk is continually monitoring the above-mentioned changes and we expect positive resolution resulting in true key-man policies being unaffected.

·         The discussions between SARS, ASISA and the National Treasury that will provide clarity are ongoing.

·         Don't do anything different yet! It's still business as usual.

 

We will inform you of the actual changes, how they will affect policies and the solutions we can offer as soon as the discussions have been concluded and the interpretation of the Act is confirmed.

 

 

Bart Wouters

tel

+27 (0)11 547 7033

cell

+27 (0)83 620 7949

fax

+27 (0)86 680 5469

email

bartw@altrisk.co.za

-=-



Altrisk is an authorised financial services provider (FSP 9869) and a Hollard associate company



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Age : 48
Location : Johannesburg

PostSubject: supporting docs   Wed Mar 30, 2011 1:03 pm

attached is a document provided by Crest
Attachments
Section 11(w) opinion.doc
Crest Opinion
You don't have permission to download attachments.
(52 Kb) Downloaded 9 times
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Admin


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Age : 48
Location : Johannesburg

PostSubject: more   Wed Mar 30, 2011 12:34 pm

Many thanks fore sending this!

With reference to a recent FPI quarterly meeting, the following was also confirmed by Marius Botha:

The view that given the uncertainty and the recognition by SARS and the National Treasury that there is a problem, it would be premature and not in the policyholders’ interest to make changes to key-man policies, etc. as a result of the recent amendment to the Income Tax Act.

I therefore also agree that replacing a policy may be poor advice given that SARS intends to propose an alteration to the Act for policies entered into before 1 January 2011 (yet they have not confirmed as to when they will.

In addition this, there was also additional errata & it is best to wait until SARS amends the same & not to do anything until then.

Yet, unfortunately some opportunistic product providers have already made “add-on” benefits available to advisers / planners. This will however prove to be short sighted and not be in the client’s best interest.

I therefore congratulate Altrisk for taking this very ethical stance!



Last edited by Admin on Wed Mar 30, 2011 3:13 pm; edited 3 times in total
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Admin


Posts : 94
Join date : 2011-03-30
Age : 48
Location : Johannesburg

PostSubject: general comments and Q&A   Wed Mar 30, 2011 12:25 pm

Thanks for this but I wonder if you could clear something up for me.
I went to a Liberty presentation yesterday where we were told that it's definitely not business as usual and that, until such time as SARS makes a different ruling, the proceeds of company-owned, non-conforming policies will be taxed as income in the hands of the company - irrespective of whether or not they've been deducting the premiums. This may well change in the future but we're not there yet.
You say below that:

...it would be premature and not in the policyholders’ interest to make changes to key-man policies as a result of this amendment to the Income Tax Act.

I can't work this one out. Until there are further amendments, the proceeds of the KEYMAN or CONTINGENT LIABILITY policies I've sold are going to be reduced by 28% due to tax. If I just keep quiet about this it would seriously affect the financial planning I've done for my clients and leave me in a position where I can get done for bad advice. Why is it not in my clients' best interests for me to go around and increase the cover on these policies?
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http://www.altrisk.co.za
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