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Income Tax Act 2007

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

EY 21: Shareholder base income: profit participation policies

You could also call this:

“Income for shareholders from certain life insurance policies”

If you’re a life insurer, you might have some income from profit participation policies. This income is part of what’s called your shareholder base income. To figure out how much of this income you have, you need to use a special calculation.

The calculation looks at a few different things:

  1. The income you would get from the assets that support these policies.
  2. How much of the value of these assets comes from money the company has kept (called retained earnings).
  3. How much of the value comes from future profits that will go to shareholders.
  4. Any money that has been moved from shareholders to policyholders for these policies.

You use these numbers in a formula to work out your shareholder base income from profit participation policies. The formula takes into account the income from assets, the average of retained earnings and future shareholder transfers, and subtracts any transfers made to policyholders.

This calculation helps to determine how much of the income from these policies should be counted as income for the shareholders of the life insurance company.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1515843.

Topics:
Money and consumer rights > Taxes
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EY 20: Shareholder base allowable deductions: non-participation policies, or

“Allowable expenses for life insurers' non-participating policies”

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EY 22: Shareholder base allowable deductions: profit participation policies, or

“How life insurers calculate deductions for profit-sharing policies”

Part E Timing and quantifying rules
Life insurance rules: Profit participation policies

EY 21Shareholder base income: profit participation policies

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

    asset base gross income × (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 profit participation 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.

                  Notes
                  • Section EY 21: substituted, on , by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                  • Section EY 21(2)(b)(i): amended, on , by section 36(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
                  • Section EY 21(2)(b)(ii): amended, on , by section 36(2) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
                  • Section EY 21(2)(c)(i): amended, on , by section 86(1) (and see section 86(3) and (4)) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                  • Section EY 21(2)(c)(i): amended (with effect on 1 July 2010), on , by section 63(1)(b) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
                  • Section EY 21(2)(c)(ii): amended, on , by section 86(2) (and see section 86(3) and (4)) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                  • Section EY 21(2)(c)(ii): amended (with effect on 1 July 2010), on , by section 63(1)(b) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
                  • Section EY 21(2)(d): amended, on , by section 36(3) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
                  • Section EY 21 list of defined terms present value (net): repealed (with effect on 1 July 2013), on , by section 63(2) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).