‘Educational policy’ is defined as - “An insurance policy taken out by a tax payer for the exclusive and sole purpose of making provision for future education or training of a child or step-child of the taxpayer contemplated by section 16(1)(ab)(ii).”

Furthermore paragraph 11A of schedule 2 of the Act regulates employees’ tax and the employer’s administrative responsibilities. In terms of this section:

“1. An employer must issue a declaration to the Minister in the prescribed form  within 30 days following the month in which any amount received by or accrued to a taxpayer under or upon the maturity, payment, surrender or disposal of an education policy to which paragraph (dC) of the definition of “gross income” applies.
2. If an employer fails to submit a declaration in terms of subparagraph (1), he or she is liable to pay a penalty equal to 10 percent of the amount received or accrued to the taxpayer under or upon the maturity, payment, surrender or disposal of the policy.
3. Where good cause is shown in writing by the employer liable for the payment of a penalty under subparagraph (2), the Minister may remit a penalty in whole or in part.”

In order for an employer to avoid being penalised as the result of a policy benefit having accrued or having been paid to an employee, where one of your staff members claims premiums towards an education policy against the taxable income administered by your company, we suggest that you consider the following:

1. the employee should provide a copy of the policy to prove that the policy complies with the definition per above;
2. your HR/payroll department should diarise the maturity date of the policy and to introduce a strict routine to follow up on maturity date;
3. the employee should sign an undertaking, to inform HR/payroll department immediately upon cashing in the policy proceeds and to indemnify your company against any penalty as contemplated in section 11A of schedule 2, should he/she fail to inform your company immediately upon having cashed in the policy proceeds.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.