MHK Chartered Accountants Comment On FBT On Insurance Paym

IRD have just released another of their current tax focuses, QB 15/06, in which they confirm they’re reviewing that payments by businesses on group life insurance, disablement and/or trauma insurance policies are treated correctly for FBT or other tax treatment.

Ian Malcolm, Managing Director of MHK Chartered Accountants, notes from the hundreds of business records processed by MHK Chartered Accountants, there are always quite a number that treat insurance payments incorrectly for tax purposes.  If you are looking for an advice, our tax accountants will help you.

IRD state “We are currently reviewing employers who take out group life insurance, disablement, and/or trauma insurance policies where the risk insured relates to the wellbeing of employees. The purpose of this review is to make sure that such policies have been treated correctly for income tax, fringe benefit tax (FBT) and goods and services tax (GST).”

“Group policies or benefits under such group policies, in the name of the employer, where the employee will receive directly or indirectly any claim proceeds are subject to FBT.

Trauma and disablement policies are specified insurance premiums, specifically included as fringe benefits under Section CX 16 of the Income Tax Act 2007.

Term life insurance policies are an unclassified fringe benefit under section CX 37 of the

Income Tax Act 2007.”

Where an employer themselves is the named beneficiary of a policy over the lives of their employees, but the policy is held for the benefit of employees or their estate and a representation in those terms has been made to employees, FBT will similarly apply.

Mr Malcolm comments that, “One common error is to incorrectly claim GST on personal life insurance payments.  Although some insurance premiums validly have GST added, many do not, or the GST is not validly able to be claimed back.”

“Many other payments should be subject to FBT however are not returned for FBT purposes – that is the current IRD focus”

Mr Malcolm continues:  “In other instances, we have found that there are valid tax deductible insurance premiums paid, however the business has not claimed these premiums for tax purposes.  One frequent example is Keyman insurance.  At times it can be tricky determining the tax treatment of some premiums, in particular where there is a mix of motives, and often a simple Shareholder Agreement will resolve this position and mitigate or clarify potential income tax and FBT issues”

MHK Chartered Accountants specialise in legally minimising all types of taxation obligations and offer a no-obligation discussion free of charge.  For more information on this, and MHK Chartered Accountants, please go to http://aucklandaccountant.net.nz