What's changing - New rules

• Two tax bases, but different to the tax bases under the old rules
• Shareholder base: Tax life risk business broadly on cashflow profits adjusted for risk reserves.
  • Shareholder base income:
    • Premium income from risk business
    • Shareholder portion of investment income and participating policy profit
    • Fee and commission income
    • Reinsurance claims on risk business
    • Annuity income
    • Income from other sources
  • Shareholder base deductions:
    • Claims from risk business
    • Reinsurance premiums on risk business
    • Other operating expenses (e.g. commissions)
  • Plus/minus movements in risk reserves (determined in accordance with specific rules)
• Policyholder base:
  • taxes net investment income from policyholder funds and policyholder share of net investment income from participating policies
  • Life insurers pay tax on policyholder base on behalf of policyholders
• Heavy reliance on actuarial calculations
• Going forward, imputation credits must be apportioned between shareholder and policyholder tax bases
• Tax benefit available to PIEs of non-taxation of gains on Australasian shares will be extended to investments held by life insurers on behalf of policyholders
• Life insurers can elect to attribute income to policyholders at their individual PIE tax rates in similar way that PIEs do. However, the costs of doing that are expected to significantly outweigh the benefits so unlikely many life insurers will make this election.
• 30% tax rate applicable to both tax bases (assuming life insurers don’t elect into the PIE rules)