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Income Tax Act 2007

Timing and quantifying rules - Life insurance rules - Transitional adjustments and annuities

EY 31: Annuities

You could also call this:

“Rules for calculating income or deductions from life insurance annuities”

This section applies to you if you have a life insurance policy that is an annuity. An annuity is a type of insurance that pays you money regularly.

For each year, the life insurance company has to work out an amount for these annuities. They use a special maths formula to do this. The formula looks at two main things:

  1. The company’s closing actuarial reserves for active annuities. This is like a savings pot that the company keeps to pay for future annuities.

  2. The expected death strain for active annuities. This is an estimate of how much money the company might need to pay out when people with annuities die.

The company puts these numbers into the formula to get a result. If the result is a positive number, it means the company has made some extra money. This extra money is called “shareholder base income”. If the result is a negative number, it means the company has lost some money. This loss is called a “shareholder base allowable deduction”.

The company uses special rules in other parts of the law to work out the exact numbers for the closing actuarial reserves and the expected death strain.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1515888.

Topics:
Money and consumer rights > Taxes
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“This outdated section on calculating mortality profit with partial reinsurance was removed”

Part E Timing and quantifying rules
Life insurance rules: Transitional adjustments and annuities

EY 31Annuities

  1. This section applies when a life insurance policy is an annuity.

  2. For the income year, a life insurer has an amount calculated for the relevant annuities using the formula—

    closing actuarial reserves − (0.99 × expected death strain).

    Where:

    • In the formula,—

    • closing actuarial reserves is the life insurer’s closing actuarial reserves (active annuities), calculated in accordance with section EZ 59(2) (Meaning of actuarial reserves):
      1. expected death strain is the amount calculated under the expected death strain formula (active annuities) in accordance with sections EZ 53 to EZ 60 (which relate to the transitional adjustment for expected death strain) for the income year.

        1. If the formula in subsection (2) gives a positive amount, the life insurer has that amount as income included in their shareholder base income. If the formula in subsection (2) gives a negative amount, the life insurer has that amount as a deduction included in their shareholder base allowable deductions.

        Notes
        • Section EY 31: substituted, on , by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).