Non-conforming policies vs conforming policies

Abstract

The restriction on the deductibility of insurance premiums in terms of section l1 (w) of the Income Tax Act ("the Act") has created constraints regarding the implementation of deferred compensation schemes. However, for insurance premiums that are not deductible in terms of the Act, there seem to be additional opportunities for the introduction of a deferred compensation plan that could result in tax savings. In this article the relevant Income Tax legislation and principles, as established by the courts, are analyzed in order to determine the tax implications and benefits of a traditional deferred compensation plan. The tax and cash flow savings were furthermore, compared for deferred compensation plans utilising policies of which the premiums are deductible in terms of the Act as well as policies of which the premiums are not deductible.