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Thread: Deduction of personal income protection

  1. #11
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    Long term assurers carry those kind of risks more than short term insurers do.

    Some specialist short term insurers (not the "big guns") do provide such products, but the benefits of these are limited to short term protection (maximum payment periods < 2 years, i.e. no permanent disability benefits are provided).

    Apart from PPS, the rest usually only provide for long term protection, i.e., their products cater for both short - and long term illnesses/disabilities.

    A financial adviser should be able to assist you in this regard, David.

    hth

    Harry

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    Thanks for the replies so far guys.

    I tend to believe things aren't that complex that a bit of reading won't solve, so I'm trying to forge my way around the information so that at least I won't get conned by an unscrupulous character. This income protection from SARS is the only thing I have to resolve still regarding personal income.

    This brings me to the main question:
    What is seen by SARS as satisfying "Income protection insurance"?
    Is it Life Insurance?
    Accident Cover?
    Dread Disease Cover?
    Disability Cover?
    Functional Impairment Cover?


    The industry uses a lot of different terms for slightly different things.

    I found this statement from their sites sars.co.za / sars.gov.za:
    to the extent that it covers that employee against the loss of income as a result of illness, injury,
    disability or unemployment; and
    and
    NOTE: Deductions will be considered in respect of policies where the loss of income is insured and not the ability of
    the person to earn income.
    Deductions will be considered in respect of policies where it covers you against the loss of income as a result of illness, injury, disability or unemployment and the amount payable in terms of the policy constitutes or will constitute income as defined.
    I guess the best is to ask the insurance companies whether or not the receipt of payment for a specific insurance protection policy can be used as tax deduction proof (i.e. is registered to be deductible).



    Personal Finance: http://www.persfin.co.za is actually quite a good resource by the way for general finance SA questions.
    Last edited by duncan drennan; 12-Nov-07 at 01:19 PM.

  3. #13
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    Update on Illness and disability income benefits

    Hi all

    Since I replied to Duncan on 28/80 of last year, quite a lot has changed in this arena.

    Let me quickly expand on what I'd said in the original post:
    1. The monthly amount paid by PPS during the first 24 months of any claim is not taxed. It is seen as capital and are called "SICKNESS BENEFITS";
    2. The insured does not have to prove loss of income in order to claim a benefit;
    3. The product then switches to permanent disability benefits. These payments are fully taxed as income;
    4. The permanent disability income is paid according to specific policy rules, which I won't discuss here.

    OK, now keep the structure in mind as you read along.

    PPS and Sanlam seem to be drifting apart (it's another long(ish) story) and Sanlam stand achance of losing a substantial portion of the business of graduate professionals to PPS. What to do? Sanlam decided to develop a product for graduate professionals to directly oppose PPS' Sickness Benefit and launched it in February of this year.

    And it is this new product that changes my original reply.

    This "Sickness Benefit" that Sanlam developed for graduate professionals is similar to PPS' "Sickness Benefit" for a few reasons and different in other technical detail and cover benefits.

    Let me stick to relevant similar benefits:

    1. Like PPS, Sanlam's Sickness Benefit also pays out a Tax Free monthly amount whenever it pays out;
    2. It pays out a maximum of 24 months per illness
    3. The premium for this benefit is not allowed as a deductible expense against income
    4. The insured does not have to prove loss of income to claim a benefit


    The Sickness Benefit is an addition to a standard (and current) "Income protection policy". The latter pays out a taxable income, the member has to prove loss of a substantial ability to earn an income from the nominated occupation and any other income earned from the broad profession is deducted from the income paid by the policy. This product is typically sold with a 24 month waiting period when sold in conjunction with the Sickness Benefit.

    The premium of the latter is allowed as an expense incurred in the production of income as Duncan asked.

    Even more changes:

    PPS recently announced that members will, after legal opinion was acquired and as of the 2008-2009 Tax year, be allowed to deduct certain premiums as expenses incurred in the production of income. These premiums will be the portion spent on permanent disability benefits (those that start paying after 24 months and include OSRB).

    So my answer has changed as follows, Duncan and others:

    1. Some of PPS' premiums may now be deducted and PPS will supply all members with a contribution certificate detailing this;
    2. Sanlam has launched a product, the premiums of which may not be deducted.


    In case anyone want to know more about the differences between the products and how they compare and which one is the better for you, I did a detailed (somewhat overly so, and to Sanlam's annoyance) analysis but have not been able to sit down and finalize a 53 page report into bite sized chunks devourable by people outside of the life assurance industry. Heck, even some of those in it have no idea what I am talking about. Suffice to say: "Buyer beware"

    Hope yours is a great day!

    Harry

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    Dave A (31-Jul-08), duncan drennan (31-Jul-08)

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    Thanks for information Harry. Exactly what I was searching for when I joined.

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    Quote Originally Posted by Harryf View Post


    PPS recently announced that members will, after legal opinion was acquired and as of the 2008-2009 Tax year, be allowed to deduct certain premiums as expenses incurred in the production of income. These premiums will be the portion spent on permanent disability benefits (those that start paying after 24 months and include OSRB).

    So my answer has changed as follows, Duncan and others:

    1. Some of PPS' premiums may now be deducted and PPS will supply all members with a contribution certificate detailing this;
    2. Sanlam has launched a product, the premiums of which may not be deducted.




    Harry
    Will you be able to deduct the PPS premiums to Permanent Disability fund if you are a "normal salaried person" - or do you have to be a earning commissioned or contract income?
    Peter

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    Hi Pete!

    It's been waaaay too long since I've been a visitor. So, I can't welcome you to the forum, I suppose! But I'm going to anyway!

    Back to your question. The section of the Income Tax Act that deals with the deductibility of premiums on these kind of benefits basically boils down to the following: If the premium you're paying for the benefit will result in you being paid a taxable income from the benefit at claims stage and the actual premium paid for the taxable benefit can be calculated and shown by the insurer, then that premium is seen as an expense incurred in the production of an income (or a possible income, since the income may not ever become payable (by you not claiming)).

    So, whether you are a salaried person (whether as an employee of your "own" Company or CC or employed by a third party) or whether you work as a sole proprietor, you are allowed to deduct the premium purely because by paying the premium you will be paid a taxable income should you ever claim for permanent disability benefits.

    If you are a salaried employee, your employer may not, however, lower your income by this contribution in order to calculate your taxable income on the lowered income - you have to claim Tax back from SARS when you submit your contribution certificate with your Tax return.

    I don't know whether Dave and the moderators will be happy with me and I'd like to ask them to feel free to delete this section pointing to my site, but you are welcome to have a look at my own forum dealing specifically with insurance related questions for graduated professionals, PPS, Sanlam, consequentialist ethics, BS and so forth. The address is http://www.gpforum.co.za/forum

    Kind regards

    Harry

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    Quote Originally Posted by Harryf View Post
    I don't know whether Dave and the moderators will be happy with me
    It's South African, it's on topic - no problem at all, Harry. In fact you should use it in your signature.

  9. #18
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    Hi Dave!

    Thanks for the thumbs up!

    I don't think, if I remember correctly, that I qualify for a signature just yet as I do not have enough responses or threads yet. Or rather, when I checked earlier in the year, thatw as the case.

    I'll read the rules and see - unless you'd like to do the kind thing (as usual!) and inform me! Hehe - my motto is that only by doing stuff yourself does one really learn - so I'll check teh signature rules anyway!

    Have a great weekend

    h

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    The site was very interesting and providing information about various useful topics. There is a tax deduction of personal income protection is one of the best act of the government. As stated in this act this is not applicable for all the employees and there are expectations and limitations for this also. Could you please provide some more attachments about the minimum necessities for the deduction and the required documents in case if we are the new insurance holder?

  11. #20
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    I'm sorry Harryf but I disagree with you. You are mixing personal cover and business cover. Any life assurance comapny will pay you temporary income disability after the waiting period. The sum paid will be for number of days/months/years where you cannot perform your duties and you will receive it on a monthly basis, there's no such thing as being half able to work or somebody doing your job. Lump sum disability is paid according to the severity but not income disability. If you are the owner of a business depending on the type of policy you have there are different ways in which you can claim for specific loss so please do NOT mislead people. And yes income protection is tax deductuble but you will pay tax on the proceeds should you claim. There is no double taxation in SA so if you paying your premiums with after tax money you won't pay tax on the proceeds. PPS doesn't make the laws as to which company pays tax on what, you are advertising temporary sicness benefit which is not tax deductable by law! And just by the way I can give show you where PPS is lacking, however misleading advice contravenes the ethical behavior and the fit and proper requirements in the FAIS Act!
    ---There is no traffic at the extra mile---

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