Annex 1: Minor changes in the law made by the Act: Change 124: Exempt income: health and employment insurance payments: meaning of “the insured”: section 742
This change extends the meaning of “the insured” in certain provisions relating to the exemption of payments made under insurance policies insuring against health or employment risks.
Sections 580A and 580B of ICTA exempt payments under insurance policies providing cover against risks to health or employment from income tax where they meet specified conditions. The legislation uses the expression “the insured” in several places, without any definition. In certain provisions, “the insured” is extended by section 580A(9) of ICTA to include the insured’s spouse, and any other person with whom they have joint, insured liabilities.
Section 742 extends the definition further so that a child of the insured is covered if the child is under 21. This means that payments from insurance policies taken out in respect of children’s health or employment are included in the exemption so long as the general conditions for the exemption are met. These include the condition under section 580A(6) of ICTA that the premiums must not have qualified for tax relief by being deductible in calculating the insured’s income from any source or be deductible from that income. So, following the extension of the meaning of “the insured” to include the insured’s children, if premiums were so deductible as respects the child’s income, the exemption would not be available for payments made under the policy. However, that is extremely unlikely to be the case.
This change is adverse to some taxpayers and favourable to others in principle. But it is expected to have no practical effect as it is in line with current practice.