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Income Tax Act 2007

Timing and quantifying rules - Life insurance rules - Non-participation policies

EY 15: Policyholder base income: non-participation policies

You could also call this:

“Income from non-profit-sharing savings policies for life insurers”

If you’re a life insurer, you need to include some income as policyholder base income for each year. This applies to income from savings product policies that aren’t profit participation policies. It doesn’t include income from life risk parts of premiums and claims.

To figure out how much of this income is policyholder base income, you use a special formula. The formula looks at the investment income, the average surrender value of the policies, and the average value of assets held for the policies.

You can use a different way to work out the amount if it’s more fair and reasonable. This needs to be decided by an actuary.

Sometimes, income that seems related to life risk might not be counted that way. This happens if an actuary decides the life risk is 1% or less of the premium or life reinsurance claim, and you choose to apply this rule.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1515815.

Topics:

Money and consumer rights > Taxes

Business > Industry rules

EY 14: Life insurance and life reinsurance: how sections relate, or

“How the law explains terms for life insurance and reinsurance”

EY 16: Policyholder base allowable deductions: non-participation policies, or

“Deductible costs for certain life insurance policies”

Part E Timing and quantifying rules
Life insurance rules: Non-participation policies

EY 15Policyholder base income: non-participation policies

For an income year, a life insurer's income is included as their policyholder base income if it—
relates to life insurance policies that are savings product policies and not profit participation policies; and
does not relate to life risk components of premiums and claims; and
is not a premium, or is a premium relating to income that is treated under subsection (5) as not relating to life risk components of premiums and claims; and
is included in the amount of policyholder base income calculated under subsection (2) or (4).

If an amount of income meets the requirements of subsection (1)(a) to (c), the amount of the income that is policyholder base income is calculated using the formula—
$(investment × average surrender value ÷ average savings assets)+ de minimis amounts.$

Where:
In the formula,—
investment is the amount of income that meets the requirements of subsection (1)(a) to (c), other than income included in the item de minimis amounts:
average surrender value is, for the savings product policies to which the income relates, the average surrender value of the policies for the income year. The life insurer may determine an equitable and reasonable basis for the measurement of the average:
average savings assets is, for the savings product policies to which the income relates, the average market value of assets held by the life insurer for the policies for the income year. The life insurer may determine an equitable and reasonable basis for the measurement of the average:
de minimis amounts is the amount of income meeting the requirements of subsection (1)(a) to (c) that would be treated as relating to life risk components of premiums and life reinsurance claims in the absence of subsection (5).

Despite subsections (2) and (3), for income included in the item investment in the formula in subsection (2), the life insurer may use a basis of apportionment that is different from the one described in subsections (2) and (3), if that basis results in an amount, actuarially determined, that is more equitable and reasonable than an amount determined using the basis described in subsections (2) and (3).
An amount of income relating to a policy that, but for this subsection, is an amount related to the life risk of a premium or life reinsurance claim, is treated as not relating to the relevant life risk component for the purposes of subsection (1), if—
the life insurer has actuarially determined that the life risk is 1% or less of the premium or life reinsurance claim; and
chooses to apply this subsection for the policy.

Notes

Section EY 15: substituted, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EY 15(1): replaced (with effect on 1 July 2010), on 27 February 2014, by section 58(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EY 15(1)(c): replaced, on 27 February 2014, by section 58(2) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EY 15(2): amended (with effect on 1 July 2010), on 27 February 2014, by section 58(3) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EY 15(2) formula: replaced, on 27 February 2014, by section 58(4) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EY 15(3)(a): replaced, on 27 February 2014, by section 58(5) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EY 15(3)(d): inserted, on 27 February 2014, by section 58(6) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EY 15(4): amended, on 27 February 2014, by section 58(7) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
Section EY 15(5): amended, on 1 July 2010 (applying for income years beginning on or after 1 July 2010), by section 32(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).