Question

Jacky is shareholder employee in Goodlook Ltd. What is the FBT or dividend implication for Goodlook Ltd in paying Jacky’s life insurance premiums on her behalf and sum insured is payable to Jackys family in the event of her death?

Answer 1

As per the general rules laid down on the matter of insurance premiums paid by the employer for the insurance of employees it is important to take into considerations nuances of insurance policy to ensure correct treatment of such payment in tax returns.

In case the insurance policy has been taken by the employee and the employer only makes payment of the insurance policy on behalf of the employee then such payment of premium will be subjected to PAYE. For such payments no Fringe Benefit Tax (FBT) will be applicable. This is because in such case the policy belongs to the employee. However, in case the insurance policy has been taken by the employer for the benefit of the employee and the premiums are also paid by the employer then such payment will attract FBT and hence, will be subjected to FBT.

In this case it is clear that Goodlook Limited has not taken the insurance policy for Jacky rather only paying the premium on her behalf. This is also clear from the fact that the sum insured in the insurance policy will be paid directly to the family of Jacky hence, such payment premium by Goodlook Limited will not be subjected to FBT.