28 Mar 2012
The purpose of this newsletter is to focus on the practical aspects relating to the changes introduced in the 2011 Budget Speech. GIB, the retirement fund administrator of the Destiny Retirement Funds provides members with a basic understanding on how it will affect the operational side of a business with effect from 1 March 2012.
What is fringe benefit tax?
Where an employer grants a benefit to an employee as a reward for services rendered, such benefit is taxable as a fringe benefit. The employer is obligated to then determine the cash value of such benefit, and such benefit is taxed in the employee`s hands. Examples of fringe benefits include group risk cover, low or interest free loans, free or cheap accommodation, medical aid contributions etc.
Previously the Group Risk Benefits that incurred fringe benefits tax excluded the Monthly Disability Benefit.
Background (Pre 1 March 2012)
Going forward (Effective 1 March 2012)
From 1 March 2012 the tax implications will be managed differently by introducing the individual employee as an additional layer:
Taxation Overview of Monthly Disability:
|Before 1 March 2012||From 1 March 2012|
|Tax deductibility of premiums (employer )||Yes, under section 11(a)||Yes, under section 11(w)|
|Tax deductibility of premiums (employee)||Not applicable||Yes, under section 12C(2) of the Seventh Schedule|
|Fringe benefit tax - member||No||Yes, employer will levy fringe benefit tax. Will be tax neutral for employee.|
|Beneficiary||Employee through Employer, or Employee directly from Insurer||Employee through Employer, or Employee directly from Insurer|
|Tax on benefit - employer||Two options exist: The gross benefit can be paid to the Employer to be processed via the payroll system. The Insurer can manage the tax and other deductions and pay the net amount to the Employee||Two options exist: The gross benefit can be paid to the Employer to be processed via the payroll system. The Insurer can manage the tax and other deductions and pay the net amount to the Employee|
|Tax on benefit - member||As income||As income|
|Estate Duty||Not applicable||Not applicable|