SA Financial Intermediary Forum

A Forum available for Intermediaries to raise, debate and source answers to any questions
 
HomeHome  CalendarCalendar  FAQFAQ  RegisterRegister  Log inLog in  
Welcome to the Intermediary Forum...please feel free to view, post and reply on any of the discussion topics. Registered members of the forum can download attachments and will receive mail correspondence, where and when relevant, on the various discussion topics.

Share | 
 

 Summary of Changes

Go down 
AuthorMessage
Forum Admin
Admin


Posts : 94
Join date : 2011-03-30
Age : 47
Location : Johannesburg

PostSubject: Summary of Changes   Fri Apr 15, 2011 9:35 am

Please find attached a summary of the changes from Investec
Attachments
SA_Taxation_Laws_1110.pdf
You don't have permission to download attachments.
(113 Kb) Downloaded 11 times
Back to top Go down
http://www.altrisk.co.za
Andrew M van Dam



Posts : 9
Join date : 2011-04-04

PostSubject: Tax Amendment Act 7/2010. Some lobbying required?! Some new products/ideas?!   Sun Apr 17, 2011 10:48 am

Taxation Laws Amendment Act 7 of 2010

Hi Justine, I read with interest your summary of the Amendment Act. Just a few observations and suggestions which could be a source of opportunity in our businesses.

The R300 000 exemption increased to R315 000 on 1/3/2011, but I gather you wrote this in Oct 2010

I’m pretty sure the conditions for premiums on an employer owned policy to ‘conform’ are if the ‘employee’ is the assured for risk only, not the employer. See second bullet point under 3.

If I’m understanding this ‘keyman’ policy scenario correctly, it seems grossly unfair. Lets say R1000 premium buys R1 000 000 life cover on an employee. The R1000 premium is added to the employees’ income and he pays tax of R400 on the ‘benefit’ (no benefit to him – ever!). So the employer needs to compensate the employee with an additional R667. Now the cost to the employer is R1 667, which is deductible, so the employer ends up paying R1 200 (ignoring STC). If the employee dies, the employer receives R1 000 000 less tax, i.e. R720 000, or R654 500 if STC is taken into account. No benefit upfront (in fact it costs more!), AND fully taxed at the end. The receiver is getting his cake and eating it! Not fair. Is any industry body lobbying against this unfair practice?

And with ‘deferred comp’, the premiums are no longer deductible. When the employer receives the proceeds and ‘by agreement’ passes these on to the employee, is the employers’ tax neutral status still applicable? The employee now pays 40% tax, with no-one having been granted a tax relief. The receiver has however been receiving tax on the capital as it was growing according to the four fund approach. Make sense? Not to me. These schemes were designed to reward loyalty. It appears that no longer is rewardable, perhaps due to its’ scarcity. Any lobbying against this?

These schemes were designed to solve real problems in business. If a key employee died, the success of the employers’ business could be in jeopardy, negatively affecting the employer and other fellow employees. To retain valuable employees, it is beneficial to provide a reward for that employees’ loyalty. Share option schemes too are very effective in this area, but not all employers can offer these.

What I would like to see is a ‘universal’ type policy created, i.e. one that has risk and investment benefits, where the employer owns the risk benefit and the employee owns the investment benefit. The contributions will not be deductible, and the proceeds tax free. There is an ‘insurable’ interest so the employee can be the assured and the employer benefits if the employee dies before retiring (the ‘keyman’ benefit) and the employee receives the investment at retirement in terms of the ‘Risk/Reward Agreement’ (the deferred compensation for loyalty). Cut the receiver out of the equation altogether and pay for a solution to real problems. Save a lot of time too trying to ‘prove’ deductibility etc. and have certainty about the results re tax. No longer have to fear a new ‘Taxation Law Amendment Act’.

With regard to the concession in terms of transfer duty when transferring from a company or trust to another, if the ‘recipient’ company or trust must be ‘dissolved’ within 6 months, who’s the new owner going to be? Should not the ‘dispositioning’ company or trust be ‘dissolved’ within 6 months?

Back to top Go down
Crest



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

PostSubject: Re: Summary of Changes   Thu Apr 21, 2011 2:02 pm

Andrew M van Dam wrote:
Taxation Laws Amendment Act 7 of 2010

Hi Justine, I read with interest your summary of the Amendment Act. Just a few observations and suggestions which could be a source of opportunity in our businesses.

The R300 000 exemption increased to R315 000 on 1/3/2011, but I gather you wrote this in Oct 2010

I’m pretty sure the conditions for premiums on an employer owned policy to ‘conform’ are if the ‘employee’ is the assured for risk only, not the employer. See second bullet point under 3.

If I’m understanding this ‘keyman’ policy scenario correctly, it seems grossly unfair. Lets say R1000 premium buys R1 000 000 life cover on an employee. The R1000 premium is added to the employees’ income and he pays tax of R400 on the ‘benefit’ (no benefit to him – ever!). So the employer needs to compensate the employee with an additional R667. Now the cost to the employer is R1 667, which is deductible, so the employer ends up paying R1 200 (ignoring STC). If the employee dies, the employer receives R1 000 000 less tax, i.e. R720 000, or R654 500 if STC is taken into account. No benefit upfront (in fact it costs more!), AND fully taxed at the end. The receiver is getting his cake and eating it! Not fair. Is any industry body lobbying against this unfair practice?

And with ‘deferred comp’, the premiums are no longer deductible. When the employer receives the proceeds and ‘by agreement’ passes these on to the employee, is the employers’ tax neutral status still applicable? The employee now pays 40% tax, with no-one having been granted a tax relief. The receiver has however been receiving tax on the capital as it was growing according to the four fund approach. Make sense? Not to me. These schemes were designed to reward loyalty. It appears that no longer is rewardable, perhaps due to its’ scarcity. Any lobbying against this?

These schemes were designed to solve real problems in business. If a key employee died, the success of the employers’ business could be in jeopardy, negatively affecting the employer and other fellow employees. To retain valuable employees, it is beneficial to provide a reward for that employees’ loyalty. Share option schemes too are very effective in this area, but not all employers can offer these.

What I would like to see is a ‘universal’ type policy created, i.e. one that has risk and investment benefits, where the employer owns the risk benefit and the employee owns the investment benefit. The contributions will not be deductible, and the proceeds tax free. There is an ‘insurable’ interest so the employee can be the assured and the employer benefits if the employee dies before retiring (the ‘keyman’ benefit) and the employee receives the investment at retirement in terms of the ‘Risk/Reward Agreement’ (the deferred compensation for loyalty). Cut the receiver out of the equation altogether and pay for a solution to real problems. Save a lot of time too trying to ‘prove’ deductibility etc. and have certainty about the results re tax. No longer have to fear a new ‘Taxation Law Amendment Act’.

With regard to the concession in terms of transfer duty when transferring from a company or trust to another, if the ‘recipient’ company or trust must be ‘dissolved’ within 6 months, who’s the new owner going to be? Should not the ‘dispositioning’ company or trust be ‘dissolved’ within 6 months?

Hi Andrew
Thank you for your opinion and suggestions on the summary of the tax changes as done by Justine Wyatt. My feeling is that one should bear in mind that this realy is just a summary and the real meat on the bone has been trimmed down a lot. Treasury and ASISA have also not finalised their discussions with regards to the amendments and more specifically the true intentions of Treasury. We hope that these discussion will be concluded by the end of May and we will then hopefully have more clarity on this matter.
Back to top Go down
http://www.cresttrust.co.za
Andrew M van Dam



Posts : 9
Join date : 2011-04-04

PostSubject: Re: Summary of Changes   Fri Apr 22, 2011 10:19 am

I hope some 'common sense' will come from the discussions, because as it stands there isn't any.
Back to top Go down
Sponsored content




PostSubject: Re: Summary of Changes   

Back to top Go down
 
Summary of Changes
Back to top 
Page 1 of 1

Permissions in this forum:You cannot reply to topics in this forum
SA Financial Intermediary Forum :: Taxation Law :: Income Tax Act :: Taxation Laws Amendment Act 7/2010-
Jump to: