Chapter 6 (Tax) Flashcards
How are benefits treated where the policy is owned by a company on the lives of employees?
- premiums are tax deductible if:
- taxpayer is the ph
- benefits payable on death, disablement,
disablement or severe illness are from
premiums payable under the policy
where it is considered to be a taxable
fringe benefit granted to employees or
directors of the company
- proceeds are included in taxable income
Voluntary annuities - how are they taxed?
Lump sum shall be taxed on amount of the annuity less the amount considered to be the capital element.
the capital element is equal to the cash consideration divided by total payment expected by the insurer multiplied by the annuity amount.
Defn of risk policy fund
Benefits cannot exceed premiums except where the benefits are paid due to death, disablement, illness or unemployment and excludes all annuities
Defn of untaxed policyholder fund
Any policy not included in the risk policy fund that is owned by any pension, provident, retirement annuity, preservation fund or benefit fund.
Any policy not included in the risk policy fund whose owner is exempt from tax.
Any annuity products.
Determination of taxable income of each of the five classes
RPF = tax on profits earned - transfers to CF
IFP and CPF = tax income is equal to inv and other income in the fund less a deduction for expenses
UPF = not taxable
CF = in accordance with normal income tax principles with exception of transfers between funds.
= expenses incurred by CF can only be deducted against taxable income in CF and not against transfers into CF
Limit of which a fund can be in excess E
80% of taxable income of that year
Net Capital Gain is multiplied by x when calculating taxable income
40% in IFP
80% in CPF and CF
0% in untaxed policyholder funds
Tax rates for each of the five funds
IFP: 30%
Rest is 27%
