Inland Revenue has recently been reviewing the tax rules in relation to a number of group life, disablement and trauma insurance policies. As part of that process, the Act includes changes that clarify the definition of “specified insurance premium”.
All life, accident and sickness insurance policies, including group life insurance, taken out by an employer on employees’ lives (or certain family members) in connection with employment are generally subject to fringe benefit tax (“FBT”).
Previously these insurance premiums had to be classified under the FBT rules as either a “specified insurance premium” or an “unclassified benefit”. For compliance cost reasons, in practice many taxpayers generally treated these premiums as specified insurance premiums.
The new rules clarify that from 30 March 2017, all life insurance premiums for life insurance policies, including group life insurance premiums, taken out by an employer for the benefit of an employee on employees’ lives (or certain family members) are treated as specified insurance premiums. This change should remove the current uncertainty in this area and simplify compliance with the FBT rules.
Employers with group life insurance policies, or who are considering implementing group life insurance policies in the future, should consider the impact of the new rules.