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New Zealand law explained for everyone

Income Tax Act 2007

Income - Income from insurance

CR 4: Income for general insurance outstanding claims reserve

You could also call this:

“Insurance companies' income calculation for outstanding claims reserve”

This section explains how insurance companies calculate income related to their outstanding claims reserve for general insurance contracts. You need to know about this if you’re an insurer who uses specific accounting standards for general insurance contracts or if you’re a life insurer with general insurance contracts.

The rule doesn’t apply to contracts with premiums covered by section CR 3 or contracts affected by section DZ 10.

To figure out your income for a year, you use a simple math formula. You subtract your closing outstanding claims reserve from your opening outstanding claims reserve. If the result is more than zero, that amount becomes your income.

The opening outstanding claims reserve is usually the same as your closing reserve from the previous year. But there are special rules if it’s your first year using this method or if you’ve just received transferred contracts.

The closing outstanding claims reserve is the amount you calculate at the end of the current year.

This helps make sure that changes in your outstanding claims reserve are properly reflected in your taxable income each year.

This text is automatically generated. It might be out of date or be missing some parts. Find out more about how we do this.

View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM2538262.

Topics:
Money and consumer rights > Taxes
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Part C Income
Income from insurance

CR 4Income for general insurance outstanding claims reserve

  1. This section applies for—

  2. an insurer who—
    1. uses IFRS 4, Appendix D or IFRS 17 for general insurance contracts:
      1. is a life insurer who has general insurance contracts; and
      2. general insurance contracts, excluding contracts having premiums to which section CR 3 (Income of non-resident general insurer) applies.

        1. This section does not apply for contracts that section DZ 10 (General insurance with risk period straddling 1 July 1993) applies to.

        2. For an income year (the current year), an insurer has income of the amount by which zero is less than the amount calculated using the formula—

          opening outstanding claims reserve − closing outstanding claims reserve.

          Where:

          • In the formula,—

          • opening outstanding claims reserve is the total for the general insurance contracts of—
            1. the amount of the insurer's closing outstanding claims reserve for the income year before the current year (the prior year), for general insurance contracts to which neither of subparagraphs (ii) and (iii) apply:
              1. the amount of the insurer’s closing outstanding claims reserve, for general insurance contracts not referred to in subparagraph (iii), used by the insurer for tax purposes for the prior year, if the current year is the first year for which this section applies to the insurer, or for which the insurer adopts IFRS 17, or for which the insurer applies for the first time in a tax calculation the definition of present value (gross) in section EY 24(5) (Outstanding claims reserving amount: non-participation policies not annuities):
                1. the amount calculated using the formula in section DW 4(4B) (Deductions for general insurance outstanding claims reserve), for general insurance contracts transferred to the insurer in the current year by a transfer to which section ED 3(1B) (Part-year tax calculations for transfers: general insurance OCR) applies:
                2. closing outstanding claims reserve is the amount of the insurer’s outstanding claims reserve, calculated at the end of the current year.

                  Notes
                  • Section CR 4: added (with effect on 1 April 2008), on , by section 34(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                  • Section CR 4(1)(a)(i): amended (with effect on 1 January 2023), on , by section 20(1) (and see section 20(4) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                  • Section CR 4(3)(a)(ii): replaced (with effect on 1 January 2023), on , by section 20(2) (and see section 20(4) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                  • Section CR 4(1B) heading: inserted (with effect on 1 April 2008 and applying for the 2008–09 income year and later income years), on , by section 11(1) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
                  • Section CR 4(1B): inserted (with effect on 1 April 2008 and applying for the 2008–09 income year and later income years), on , by section 11(2) of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
                  • Section CR 4(3)(a): replaced, on , by section 10 of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
                  • Section CR 4 list of defined terms general insurance contract: repealed (with effect on 1 April 2008), on , by section 11(b) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
                  • Section CR 4 list of defined terms IFRS 17: inserted (with effect on 1 January 2023), on , by section 20(3) (and see section 20(4) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).
                  • Section CR 4 list of defined terms premium: added (with effect on 1 April 2008), on , by section 11(a) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
                  • Section CR 4 list of defined terms present value (gross): inserted (with effect on 1 January 2023), on , by section 20(3) (and see section 20(4) for application) of the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Act 2023 (2023 No 5).