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With the impending National Budget address rumoured to include tax increases, what better time to ask: is life insurance tax-deductible?
Benjamin Franklin once said that, “Nothing is certain but death and taxes”. If you earn a fixed salary, you may be interested in how much flexibility, if any, can be applied to the amount of tax you pay SARS, with regards to your insurance.
The Tax Implications Of Life Insurance
Finance Minister Pravin Gordhan’s National Budget speech in February is rumoured to include increases in the Government’s largest source of income: personal income tax. It’s no surprise then, that you’ve found yourself here, looking for ways to pay less tax through any means. Even your insurance.Medical Aid
Health insurance (which is not the same as medical aid) and gap cover is not tax-deductible. Medical aid contributions paid by a taxpayer to a registered medical scheme, however, are. This rebate is called the Medical Schemes Fees Tax Credit. And, it applies to the fees you (as the taxpayer) contribute for yourself, as well as your dependants. According to Tax Tim, the credit, or rebate, is a fixed monthly amount of R286 for the primary member, R286 for your first dependent, and R192 for each of your additional dependents. So, for a family of four, your annual rebate would equate to R11,472.00 – provided you’re contributing out of pocket.CLICK BELOW to read about how you can save money by paying off your car.
Life Insurance, Critical Illness, And Disability Insurance
In March 2015, an amendment to the Income Tax Act standardised the tax treatment of insurance policies offering protection against death and disability. Previously, premiums on policies that paid out a lump sum on disability were not tax-deductible. But, lump sums paid were tax-free. Premiums on income-protection policies were, however, tax-deductible, and monthly income on payout was taxed. The 2015 amendment removed the tax deduction for premiums on income-protection insurance, disability, and life insurance, and made monthly income received tax-free. Claimants can now expect a larger payout. The fear was that the loss of this deduction would discourage the uptake of insurance cover. The current leading causes of disability across all income groups are musculoskeletal, neurological, psychiatric, and cancer. Considering the longer-term nature of these conditions, obtaining adequate cover, regardless of the tax implications is a serious undertaking.CLICK BELOW to make use of our tax calculator and / or to be notified when it is time to submit your taxes!
Retirement
Luckily, tax benefits from retirement contributions can still be enjoyed now. Not later when necessity requires it. The 2013 Taxation Laws Amendment Act that was passed in November 2015 means that employees contributing to a provident fund may, as of March 2016, also enjoy a tax benefit. These contributions were previously included. A retirement annuity or company retirement fund is still one of the most tax-efficient ways to save for retirement. Faeeza Khan, Legal Marketing Specialist at Liberty, recently reviewed ways to reduce your tax bill through your retirement vehicles:"Both your contributions and growth within the fund are tax-free. Depending on your marginal tax rate, over a twenty-year period, the tax benefit could double the amount you have available at retirement. You can contribute up to 27,5% of the greater taxable income, or remuneration, capped at R350 000 per annum," says Khan.
- An individual paying 18% tax on his taxable income of R180 000 per annum will save R8 910, should he contribute the maximum amount of 27,5% of his taxable income, which is R49 500.
- Someone paying 36% tax on his taxable income of R500 000 per annum will save R49 500, should he contribute the maximum amount of 27,5% of his taxable income, which is R137 500.
- An individual paying 41% tax on his taxable income of R1 million per annum will save R112 750, should he contribute the maximum amount of 27,5% of his taxable income, which is R275 000.
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