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Income Tax Act 2007

Timing and quantifying rules - Valuation of excepted financial arrangements

ED 3: Part-year tax calculations for transfers: general insurance OCR

You could also call this:

“How to calculate tax when insurance contracts are transferred mid-year”

When someone transfers general insurance contracts to another person in a year, there are special tax rules that might apply. These rules are about outstanding claims reserves.

If the rules apply to the person receiving the contracts but not to the person giving them away, the receiver needs to do some special calculations. They do these as if they were the giver, and then use the results in a specific way.

The person giving away the contracts does a calculation for part of the year, up to the day of the transfer. The person receiving the contracts also does a calculation, but starting from the day of the transfer. The receiver’s starting amounts for outstanding claims are the same as the giver’s ending amounts, unless the giver keeps the reinsurance for the policies.

When working out their tax, both people treat the year as if it’s split into two separate years. This helps them calculate their tax correctly for the part of the year they had the contracts.

These calculations might create income and deductions for the year, but they don’t mean you have to file separate tax returns for each part of the year.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM4884503.

Topics:
Money and consumer rights > Taxes
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Part E Timing and quantifying rules
Valuation of excepted financial arrangements

ED 3Part-year tax calculations for transfers: general insurance OCR

  1. This section applies when a person (the transferor) transfers general insurance contracts to another person (the transferee) in an income year and sections CR 4 and DW 4 (which relate to outstanding claims reserves) apply to either or both of the transferor and transferee.

  2. If sections CR 4 and DW 4 apply to the transferee and not to the transferor, the transferee—

  3. does the calculations that the transferor would be required to perform under this section if sections CR 4 and DW 4 applied to the transferor; and
    1. uses the results of the calculations in the way required under this section for a transferee.

      1. A transferor to whom sections CR 4 and DW 4 apply does a part-year calculation immediately before the transfer, as described in subsection (3), for the transferred general insurance contracts, but only for their part-year ending on the day the transfer occurs. A transferee to whom sections CR 4 and DW 4 apply also does a part-year calculation for the transferred contracts, as described in subsection (3), but only for their part-year starting on the day the transfer occurs. The transferee's relevant opening outstanding claims reserve amounts equal the transferor's relevant closing outstanding claims reserve amounts immediately before the transfer, but if the reinsurance associated with transferred policies is not assigned by the transferor to the transferee, the transferee's reserve amounts are calculated without subtracting relevant reinsurance amounts.

      2. For calculating their income tax liability for the tax year that corresponds to the income year, the transferor and transferee treat references, in sections CR 4 and DW 4 and in the rules for life insurers, to an income year or a tax year as if they are references to 2 separate tax years and corresponding income years (the part-years) within that tax year.

      3. Transferor's and transferee's part-year calculations may give rise to income and deductions for the income year, but they do not create any part-year tax return obligations.

      Notes
      • Section ED 3: inserted (with effect on 7 September 2010), on , by section 33(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
      • Section ED 3(1): replaced, on , by section 47(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
      • Section ED 3(1B) heading: inserted, on , by section 47(2) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
      • Section ED 3(1B): inserted, on , by section 47(2) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
      • Section ED 3(2): amended, on , by section 47(3)(a) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
      • Section ED 3(2): amended, on , by section 47(3)(b) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).
      • Section ED 3(3): amended (with effect on 2 November 2012), on , by section 34 of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).