Chapter 6 - South African Insurance Taxation

Question 1

Recently 3 major changes to the taxation laas that affect IC were made:

Answer 1

1. Result of the implementation of the Insurance Act in 2018 and the effect this has on the valuation of actuarial liabilities for tax purposes.
2. Introduction if new tax fund for risk policies
3. Consolidation of rules governing retirement, pension and provident funds under retirement reforms

Question 2

Prms may be deducted from the taxable income of the employer if the policy conforms to: (3)

Answer 2

1. The taxpayer (i.e. the employer) must be the PH
2. The only benefit payable under the policy is as result of death, disablement or severe illness of the employee whose life is insured under the policy
3. The amount incurred by the taxpayer iro prms payable under the policy is deemed to be a taxable fringe benefit granted to an employee or director of the taxpayer

Question 3

An example of a tax exempt instituition:

Answer 3

Registered public benefit organisation

Question 4

Maximum deductible contribution to any combination of a retirement annuity, pension and/or provident fund in the year of assessment:

Answer 4

Lower of:
- 27.5% of the greater of taxable income or remuneration
- R350 000

Question 5

Employer’s contribution to these two approved benefit funds may be deducted from employer’s taxable income:

Answer 5

1. Friendly soceities
2. Medical schemes registered under the Medical Schemes Act

Question 6

Formula for calculating estate duty tax payable:

Answer 6

20% × max[0, total value of estate -R3.5M]

Question 7

5 separate funds LI companies has to hold for taxation purposes:

Answer 7

1. The risk policy fund
2. Untaxed PH fund (UPF)
3. Individual PH fund (IPF)
4. Company PH fund (CPF)
5. Corporate fund (CF)

Question 8

Definition of risk policy according to the Taxation Laws Amendmwnt Act:

Answer 8

It means any policy under which the benefits payable cannot exceed the amount of premiums receivable, except where all or substantially the whole of the policy benefits are solely payable due to death, disablement, illness or unemployment amd excludes a contract of insurance in terms of which annuities are being paid

Question 9

The Untaxed PH Fund is represented by assets having a market value equal to the value of liabilities of: (3)

Answer 9

1. Any policy not included in the risk policy fund that is owned by any pension, provident, retirement annuity, preservation funds or benefit fund.
2. Any policy not included in the risk policy fund whose owners is exempt from tax
3. Any annuity contracts iro which annuities are being paid

Question 10

The amount of capital gains that will be added to the taxable income of various funds: (2)

Answer 10

1. IPF = 40% * net capital gains
2. CPF and CF = 80% * net capital gains

Question 11

Income tax paid by each fund: (5)

Answer 11

1. IPF = 30%
2. CPF = 27%
3. UPF = 0%
4. CF = 27%
5. RPF = 27%