Chapter 6: South African insurance taxation

Question 1

Deduction of expenses in the policyholder funds

The amount of expenses allowable as a deduction in the IPF and CPF is limited to the total of: (3)

Answer 1

i. the amount of expenses directly attributable to the income of that fund.

ii. expenses which have been allocated to that fund, but excluding any expenses directly attributable to amounts which do not constitute “income”, multiplied by the expense relief ratio.

iii. 30% of any amount transferred by the policyholder fund to the corporate fund multiplied by the expense relief ratio, provided this amount does not exceed the balance of income remaining in that fund after taking into account the other deductions.

Question 2

excess E position:

Answer 2

When the deductible expenses of a policyholder fund are larger than the taxable income of the fund, then it is sad that the fund is in an “excess E” position.

Question 3

Securities transfer tax (STT)

Answer 3

• STT is payable on the transfer of a security (typically a share) issued by a company incorporated in South Africa or in respect of a foreign company which is listed on the JSE.
• STT is payable at a rate of 0.25% of the market value of the security transferred.

Question 4

Tax treatment of life assurance lump sum of individual:

Answer 4

• The lump sum proceeds of a life assurance policy paid on death or maturity are exempt from income tax in the hands of the original policyholder or beneficiaries, with the exception of second hand policies.
• This applies not only to the basic policy but also to any profits or bonuses that have accumulated on the policy.

Question 5

Tax treatment of Income Protection type policies:

Answer 5

• Before 1 March 2015, premiums paid for these type of policies were tax deductible and the benefits were subject to income tax in the hands of the policyholder.
• After 1 March 2015, premiums are paid from after-tax income and benefits are not taxable.