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How exactly does Cost to Company affect retirement and medical aid funds?

by , 24 February 2016
An important principle of a Cost to Company (CTC) package is to know how exactly it affects the rules of retirement and medical aid funds.

This principle often raises many questions and confusion. So to help you understand it a little more, here's a glimpse of what you need to know...

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But wait, how sure are you that you're structuring the package correctly?

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Retirement funds:

With CTC, you'll lower your employees' PAYE by making 50% of the contributions to retirement funds as company contribution (which isn't taxable in your employees' hands).

Just remember that the rules of the fund match your payroll and company retirement policy.

Because if you don't, you'll be on the wrong side of the tax and financial services board law.

Retirement annuities

Retirement annuities are payments you make, but your employees pay tax on them.

This is unfair when you look at pension/provident fund members.

Now, instead of making the payment yourself, you can deduct these contributions from your employees' pay.

But just remember that there's a limit of 15% of the amount he gets during the year from non-pensionable pay.

There all 3 tax benefits for your employees to contribute to retirement annuities…

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Tax benfits:

Benefit#1:

Contributions are tax deductible.

Benefit#2:

Investment returns are tax free.

Benefits#3:

Tax on benefits is on a favourable basis.

In other words, tax on lump-sum benefits is on a sliding scale with a portion of the benefit tax free.
 
Medical aid funds:

Many of the rules that apply to medical aid no longer apply to CTC.

Now your employees can cover anyone they like. This is of course as long as they can afford it and that the rules of the fund allow for it.
 
*To learn the finer details of what has been covered in the above, simply turn to chapter C 17: Cost to Company in your Practical Guide to Human Resources Management handbook.

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