August 2020


Leverage August 2020
In response to many queries on retrenchment benefits we have published updated versions of an ASAP on severance benefits as well as a Retrenchment Survival Guide (linked to this edition). In this edition we also shed some light on the difference in taxation between a severance benefit and a retirement fund lump sum benefit. In addition, Emile Hofmeyr considers the latest court case where the inclusion of a living annuity in the estate, when calculating the accrual claim in the event of divorce, was considered.Download


The Living Annuity
The Living Annuity is defined by the Income Tax Act but is not a registered retirement fund. It has the structure of a long-term insurance policy purchased by a retirement fund or a member of a retirement fund and is commonly referred to as a compulsory linked annuity. We look at the practicality of this and explore income rate and frequency, access to funds, beneficiaries, estate duty implications and more. Download
Living Annuities and Conventional Life Annuity
Both of these are governed by the Income Tax Act, the Long Term Insurance Act and section 37A and B of the Pension Funds Act, as well as various Practice Notes and Directives. However, there are key differences you should be aware of and we’ve compiled a comprehensive comparison between the two. Download

Sales Enablers

Retrenchment Survival Kit
This document summarises the most frequently asked questions by employees and financial advisers when faced with retrenchment. It also provides some practical examples to highlight the most common errors made in practice. We discuss common scenarios and provide additional guidance. Download

Business Assurance - One Pagers

Asset replacement
Most businesses use the depreciation deduction as a book entry in order to reduce their taxable income and therefore the amount of tax to be paid each year is reduced as well. While this makes accounting sense, what happens to the asset at the end of its useful life? A solution is for the business to take out an investment policy (or an alternative investment vehicle) to accumulate capital to assist with the repurchasing of assets.Download
Buy and Sell agreement
Business owners have the need to ensure that there will be continuation of the business upon the death or disability of a co-owner. They further want security in knowing that the disposal of their business interests will be dealt with in an orderly manner. To avert risk, the co-owners of the business enter into a buy-and-sell agreement.Download
Key person protection
Effective and well trained staff, especially those with specialist skills or knowledge, is vital to a business’s success. If such an employee were to die or become disabled tomorrow, what would be the cost to that business? Key person protection is an arrangement where an employer insures the life of a key employee for the purpose of compensating the business for the loss of income it would suffer in the event of that employee’s death or disability.Download
Preferred Compensation
A high staff turnover is a costly business risk as it results in loss of productivity, intellectual property, employment costs and training costs. Therefore it is important for a business to retain and motivate its employees. An incentive scheme that rewards key employees with tax-free bonuses every five years and eliminates the cost of staff turnover and reduced productivity, can be a very effective solution.Download
Protect against business interruptions
The disability of the business owner will generally have a detrimental impact on the business and will impact not only the short term income flows but also the long-term sustainability of the business. If the business cannot maintain its business overheads it will surely face losing clients, employees and potential insolvency. These policies can help sustain the company for a short period of time while assessing the overall impact and planning for the future of the company. Download