G and S Insurance Consultants

THE TRUTH ABOUT TAX IMPLICATIONS ON CORPORATE BENEFITS

There are many benefits you as an employer can offer to your employees. There are, however tax consequences to consider regarding these benefits.

The following main categories of employee benefits include:
•    Gifts and Awards
•    Cell Phones
•    Childcare Services
•    Critical Illness Insurance
•    Internet
•    Overtime Meals
•    Parking
•    Membership Fees
•    Recreational Facilities
•    Training
•    Weight Loss and Wellness Programs
•    Automobiles

But, what are the tax implications of these benefits regarding contributions and premiums? It’s very important that employers load contributions and premiums correctly on the company payroll. G and S Insurance PTY (LTD) in Alberton, gives you a brief understanding of employer contributions and premiums as well as employee contributions and premiums. 

EMPLOYER CONTRIBUTIONS AND PREMIUMS:

•    Employer contributions to a Pension, Provident or Approved Risk Scheme (risk benefits that form part of a retirement fund) are tax deductible up to a maximum of 20% of remuneration.

•    Premiums paid by employers on behalf of employees to an unapproved risk scheme (including disability income insurance) are tax deductible for the employer.

•    Premiums paid by employers on behalf of employees to an unapproved risk scheme (including disability income insurance) are taxed in the hands of the employee as a fringe benefit.

•    Premiums paid by employers on behalf of employees to disability income insurance schemes may be deducted before calculating tax on the employee’s remuneration.

MEMBER (EMPLOYEE) CONTRIBUTIONS AND PREMIUMS:

•    Member contributions to a Provident Fund are not tax deductible.

•    Member contributions to a Pension Fund are tax deductible up to a maximum of the greater of 7.5% of his/her retirement funding income or R1 750.

•    Premiums paid by employers on behalf of employees to disability income insurance schemes may be deducted before calculating tax on the employee’s remuneration.

Please refer to the Retirement Reform that took effect on 1 March 2016 and the impact thereof on all types of retirement funds.

LUMP SUM BENEFIT PAYMENTS:

The following is a summary of the tax implications of lump sum group benefits payments from a pension, provident or approved group risk scheme (risk benefits that form part of a retirement fund):
Members need to be aware of the tax implications of withdrawal from a fund and/or risk benefit payment.

•    Lump sum retirement, death, disability and involuntary retrenchment benefits from a retirement fund or approved risk schemes are taxed as follows:

Taxable income from lump sum benefitsRate of tax
 0 – 500 000 0 per cent of taxable income
 500 001 – 700 000 18% of taxable income above 500 000
 700 001 – 1 050 000 36 000 + 27% of taxable income above 700 000
 1 050 001 and above 130 500 + 36% of taxable income above 1 050 000

•    Lump sum withdrawal benefits, including voluntary retrenchment benefits from a retirement fund are taxed as follows:

 Taxable income from lump sum benefits Rate of tax
 0 – 25 000 0% of taxable income
 25 001 – 660 000 18% of taxable income above 25 000
 660 001 – 990 000 114 300 + 27% of taxable income above 660 000
990 001 and above203 400 + 36% of taxable income above 990 000

Important Note: The non-taxable amounts as per both the above rates tables are cumulative.

In other words, the tax-exempt amounts of R25 000 in case of withdrawal and R500 000 in case of retirement/severance due to redundancy/death is a lifetime amount. So when applying the tax tables, previous lump sums received from a pension or a provident fund are considered.
    Lump sum benefits of unapproved risk schemes are tax free.
•    Monthly income from a disability income benefits scheme is taxed as a normal monthly salary.

G and S Insurance in Alberton invite you to consult us before applying for employee benefits. We’ll take the time to explain everything you need to know in terms of benefit options, tax implications as well as the contributions and premiums. 

Contact us for a free consultation – 011 907 2412 | adelev@gsinsurance.co.za