Friday, August 24, 2012

Insurance premiums & FBT

As many regular readers would be aware, one particular innovation in recent times in relation to insurance funded business succession arrangements is the so-called 'debt reduction' strategy.
One aspect of the arrangement that is often raised concerns the fringe benefits tax (FBT) implications of the premium payments.
Broadly, there are a number of reasons as to why FBT will normally not apply to the payment of insurance policy premiums.
Generally the accountant for the business will always be best placed to give the guidance, however some of the reasons FBT will not apply can include –

1.    the arrangements not having anything to do with employment;
2.    in some instances, the otherwise deductible rule; or
3.    while for administrative ease the premiums might be paid by the business, the actual tax position is that the amount is included as part of other payments made (for example, a dividend).
It is important to remember that aside from FBT, there are a number of other tax issues that may also be relevant (for example division 7A or capital gains tax) so it is also best to ensure the exact circumstances are considered by the accountant for the particular client.

Until next week.