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Three rules you must follow to calculate the tax deduction on your key-man insurance policy

by , 12 November 2014
If you have a key-man insurance policy on one of your employees' lives, you can claim the premiums as a tax deduction.

But you must do this correctly or SARS will charge you penalties up to 200%.

To avoid this, we're revealing three rules you must apply when you calculate this tax deduction...

 

To work out your tax deductions on a key-man insurance policy apply these three rules

 
Rule 1: If you insure the life of an employee or director for less than a year, you can claim the full amount of the single or multiple premium for the policy as a deduction in that year. This essentially means that what you paid in premiums is what you can claim as a deduction.
 
Rule 2: When the term of the policy is longer than a year, deduct only the portion of the premium you paid under the policy during the first year. 
 
Various policies fit under step 2. Under these policies, SARS allows you to claim the deduction for the premiums you paid over a period of time.
 
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Rule 3: If you have premiums you haven't claimed, you can deduct them if you receive the proceeds from the insurance policy. In this case, you could claim the deduction for those premiums against the proceeds of the policy as a lump sum. The deduction can't exceed the lump sum proceeds from the policy that you include as income. 
 
So before you claim a tax deduction on your key-man insurance policy, ensure you apply these three rules to check your calculations are correct and your claim is legitimate.
 
For more on claiming your key-man policy premiums as a tax deduction, check out the Practical Tax Loose Leaf Service
 

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