We recently presented the Pinnacle Life online solution to a large New Zealand corporate that was looking at alternatives to their current group life scheme they have in place.
The question was asked if there were any tax advantages to be gained by the company or the employees with a different form or category of contribution. We provided the following summation in response to the question posed:
Life Insurance contributions by a company are liable for FBT when;
·an insurance policy where an employer takes it out for an employee and pays the premiums
·an insurance policy of a life insurance agent or their family, where there is a discounted premium.
Life Insurance contributions by a company are not liable for FBT when
· an insurance policy where an employee or family member takes it out and the employer pays the premiums - in this case, the payments are taxable income in the hands of the employee.
·an insurance policy where an employer takes it out for an employee, pays the premiums and gains the benefit from the policy (the company or employer is the beneficiary of the product). In this case, the payments are not subject to fringe benefit tax, and are not taxable in the hands of the employee
In simple words, a group scheme policy where the company pays the premiums and the employee gets the pay-out in the event of death is taxed as an employee fringe benefit rate.
In the event that an employee takes out a policy, and the employer then pays the premiums, payments are not subject to FBT, but the premium payment is treated as taxable income for the employee.
Where the company pays the premium, and is the beneficiary of the policy (often is the case for key man insurance) payments are not subject to FBT and are not taxable.