Old rules
- Life business taxed on a two-tier basis:
- Life office base: Investment income earned for both shareholders and policyholders plus underwriting income
- Policyholder base: Income accruing to policyholders determined by applying a prescribed formula
- Gross taxable income is broadly a fraction (20%) of the expected claims made during the year
- Life premiums not taxable to life insurer, life claims not deductible to life insurer
- Savings taxed at company tax rate (currently 30%) regardless of policyholder’s marginal tax rate
Example tax calculation under old rules:
| |
Accounting |
LOB Tax |
| Premiums |
10,000 |
0 |
| Investment income |
1,000 |
1,000 |
| Claims (=Expected claims) |
(5,040) |
0 |
| Policy Acquisition costs |
(2,000) |
(2,000) |
| Other costs |
(1,000) |
(1,000) |
| Premium loading (20% claims) |
|
1,008 |
| Accounting profit / tax (loss) |
2,690 |
(992) |
|
|