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EY 16B: Policyholder base allowable deductions: consideration for investment management services
or “Deductions for life insurers managing policyholder investments”
You could also call this:

“Income from profit-sharing insurance policies for policyholders”

This section explains how a life insurer calculates their policyholder base income for profit participation policies in a given income year. You calculate this income using a special formula. The formula takes into account several factors:

The asset base gross income is the annual income the life insurer would have if they only had the asset base for these policies. This doesn’t include some specific amounts mentioned in other parts of the law.

The formula also considers the average of two proportions: the retained earnings average and the future shareholder transfers average. These look at how much of the asset base value comes from the insurer’s kept profits and future transfers to shareholders.

There’s also a part called net transfers. This is money moved from shareholders to policyholders for these specific policies.

The law defines a ‘supporting asset base’. This is the asset base for the relevant policies, but it doesn’t include assets that support unvested policyholder liabilities or assets that belong to the insurer’s shareholders.

All these parts work together in the formula to determine the policyholder base income for profit participation policies.

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Next up: EY 18: Policyholder base allowable deductions: profit participation policies

or “Calculating yearly deductions for profit-sharing insurance policies”
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Part E Timing and quantifying rules
Life insurance rules: Profit participation policies

EY 17Policyholder base income: profit participation policies

  1. For an income year, a life insurer has policyholder base income to the extent to which they have an amount for profit participation policies calculated using the formula—

    asset base gross income × (1 − retained earnings average − future shareholder transfers average) + net transfers.

    Where:

    • In the formula,—

    • asset base gross income is the amount of annual gross income that the life insurer would have for the policies' asset base, if—
      1. the life insurer is treated as having no assets other than the asset base; and
        1. amounts under sections EY 28 and EY 29 are ignored:
        2. retained earnings average is an actuarially determined amount that is the average of the following 2 proportions:
          1. the proportion of the value of the policies' asset base that is attributable to the life insurer's shareholder's retained earnings at the end of the year before the income year:
            1. the proportion of the value of the policies' asset base that is attributable to the life insurer's shareholder's retained earnings at the end of the income year:
            2. future shareholder transfers average is an actuarially determined amount that is the average of the following 2 proportions:
              1. the proportion of the value of the policies' asset base that is attributable to the value, net of tax and used in the life insurer’s financial accounts, of future transfers to the life insurer's shareholders for their portions of the future profits that are able to be supported by the supporting asset base at the beginning of the income year:
                1. the proportion of the value of the policies' asset base that is attributable to the value, net of tax and used in the life insurer’s financial accounts, of future transfers to the life insurer's shareholders for their portions of the future profits that are able to be supported by the supporting asset base at the end of the income year:
                2. net transfers is the amount transferred to the benefit of policyholders from shareholders in relation to profit participation policies.

                  1. Supporting asset base means the asset base for relevant policies excluding—

                  2. the value of assets supporting the life insurer's policyholder unvested liabilities:
                    1. the value of assets attributable to the life insurer's shareholders.

                      Notes
                      • Section EY 17: substituted, on , by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                      • Section EY 17(2)(b)(i): amended, on , by section 33(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
                      • Section EY 17(2)(b)(ii): amended, on , by section 33(2) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
                      • Section EY 17(2)(c)(i): amended, on , by section 84(1) (and see section 84(3) and (4)) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                      • Section EY 17(2)(c)(i): amended (with effect on 1 July 2010), on , by section 60(1)(b) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
                      • Section EY 17(2)(c)(ii): amended, on , by section 84(2) (and see section 84(3) and (4)) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                      • Section EY 17(2)(c)(ii): amended (with effect on 1 July 2010), on , by section 60(1)(b) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
                      • Section EY 17(2)(d): amended, on , by section 33(3) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
                      • Section EY 17(3)(a): amended, on , by section 33(4) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
                      • Section EY 17 list of defined terms present value (net): repealed (with effect on 1 July 2010), on , by section 60(2) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).