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Harry new section 11w september 2010

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  • 1. Harry Joffe Discovery Life New Section 11w
  • 2. New Section 11w by the substitution for paragraph (w) of the following paragraph: ‘‘(w) expenditure incurred by a taxpayer in respect of any premiums payable under a long-term insurance policy of which the taxpayer is the policyholder, where— (i) the amount of expenditure incurred by the taxpayer in respect of the premiums payable under the policy is included in the taxable income of an employee or director of the taxpayer; or  Grey area-is this type of policy tax free on payout?
  • 3. Cont (aa) the taxpayer is insured against any loss by reason of the death, disablement or severe illness of an employee or director of the taxpayer; (bb) the policy is a risk policy with no cash value or surrender value prior to the maturity date thereof or the death of the employee or director whose life is insured under the policy;
  • 4. Cont cc) the policy is not the property of any person other than the taxpayer at the time of the payment of the premium: Provided that any premium paid shall not be disallowed as a deduction by reason of the policy being held by a creditor of the taxpayer other than any person contemplated in paragraph (dd) as security for a debt of the taxpayer  Policy still conforming even if ceded to a bank
  • 5. Cont and (dd) no transaction, operation or scheme exists in terms of which any amount recoverable under the policy or an amount equivalent to or in lieu of such amount will be made over by the taxpayer to or in favour of— (A) the employee or director or a connected person in relation to the employee or director; (B) the estate of the employee or director; or (C) any person who is or was wholly or partly dependent for his or her maintenance upon the employee or director;’’.  Will this work in practice?
  • 6. Cont (3) “Paragraph (i) of subsection (1) comes into operation as from the commencement of years of assessment commencing on or after 1 January 2011 and applies in respect of premiums incurred on or after that date.” NB-hard now to make a policy non-conforming! We are trying to come up with a plan…. No more regulations and restrictions like 15% increase No more 10% limit Section is retroactive What to do with existing Deferred comps
  • 7. Cont-new para m (m) by the substitution in paragraph (m) of the definition of ‘‘gross income’’ for the proviso of the following proviso: ‘‘: Provided that where— (i) any amount received or accrued under or upon the surrender or disposal of any such policy falls to be included in the taxpayer’s gross income, the amount so to be included in [his] the taxpayer’s gross income shall be reduced by the amount of any loan or advance under or upon security of the policy which has been included in [his] the taxpayer’s gross income, whether in the current or any previous year of assessment [:];
  • 8. Cont ……. (iii) a lump sum that has been received by or has accrued to the taxpayer under or upon the surrender or disposal of such policy, the amount that falls to be included in the taxpayer’s gross income shall be reduced by an amount (not exceeding such lump sum) equal to so much of the premiums paid by the taxpayer under such policy as has not previously qualified for deduction from the taxpayer’s income; Makes it hard to create a non-conforming policy
  • 9. Cont (iv) any amount in respect of a policy as contemplated in— (aa) section 11(w) if that policy was concluded prior to 1 January 2011; or (bb) section 11(w)(ii) if that policy was concluded on or after 1 January 2011, is received by or accrues to a person other than the taxpayer subsequent to a cession of that policy to that other person, this paragraph does not apply’’; Not so clear what this means!
  • 10. Cont (n) by the insertion in the definition of ‘‘gross income’’ after paragraph (m) of the following paragraph: ‘‘(mA) any amount in respect of a policy as contemplated in— (a) section 11(w) if that policy was concluded prior to 1 January 2011; or (b) section 11(w)(ii) if that policy was concluded on or after 1 January 2011,
  • 11. Cont that is received by or accrues to a person other than the taxpayer contemplated in paragraph (m) subsequent to a cession of that policy, reduced by an amount not exceeding the amount so received or accrued equal to so much of the premiums paid by any person that ranked for deduction but has been disallowed solely by reason of the fact that the amount exceeded the amount of the deduction allowable in respect of the year of assessment;’’;  Not clear what this means
  • 12. New para 10-exemption for policy cession by the insertion in subsection (1) after paragraph (gE) of the following paragraph: ‘‘(gF) any value required to be taken into account in determining the gross income of any person in respect of the cession by another person of a policy contemplated in section 11(w) ceded to or in favour of that person— (i) where that person is— (aa) an employee or director of that other person or a connected person in relation to the employee or director; (bb) the estate of the employee or director; or
  • 13. Cont (cc) any person who is or was wholly or partly dependent for his or her maintenance upon the employee or director; and (ii) where that policy was concluded before 1 January 2011;’’;  Allows an existing deferred comp to be ceded, with no tax on the cession, but not so clear what happens when policy pays out eventually….
  • 14. Amendment to Section 23 [No deduction] (1) Section 23 of the Income Tax Act, 1962, is hereby amended by the addition after paragraph (o) of the following paragraphs: ‘‘ (p) any amount paid or payable to a person contemplated in section 11(w)(ii)(dd) that is funded directly or indirectly from any amount recoverable under a policy contemplated in— (i) section 11(w) if that policy was concluded prior to 1 January 2011; or (ii) section 11(w)(ii) if that policy was concluded on or after 1 January 2011,
  • 15. Cont-no deduction or an amount equivalent to or in lieu of such amount; (q) the value in respect of any cession of a policy ceded as contemplated in section 10(1)(gF).’’. (2) Subsection (1) comes into operation on 1 January 2011 and applies in respect of expenditure incurred on or after that date.  Can’t make the policy tax neutral
  • 16. Cont Section 23B of the Income Tax Act, 1962, is hereby amended by the addition: ‘‘(4) No deduction shall be allowed under section 11(a) in respect of any expenditure incurred by a taxpayer in respect of any premium paid under a long-term insurance policy— (a) of which the taxpayer is the policyholder; and (b) in terms of which the taxpayer is insured against any loss by reason of the death, disablement or severe illness of an employee or director of the taxpayer.’’. (2) Subsection (1) comes into operation as from the commencement of years of assessment commencing on or after 1 January 2011 and applies in respect of premiums incurred on or after that date. Effect on group life?

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