NZ life companies face tax scrutiny
The Inland Revenue Department (IRD) is auditing several life companies as its review of the life insurance taxation regime steps up a gear.
The Inland Revenue Department (IRD) is auditing several life companies as its review of the life insurance taxation regime steps up a gear.
As previously reported in Money Management (September 30 1999), the IRD actuarial reserving project is revisiting the assumptions life companies make when declaring tax liabilities.
National manager of corporates at the IRD, Max Carr, says issues raised by the actuarial reserving project are being reviewed in conjunction with audits of several life companies.
“The audits will follow their own timeframes and disputes arising will be addressed through the disputes resolution process,” Carr says.
Some life companies are reportedly anxious the IRD move will lead to higher tax levels for the industry.
However, head of the Investment Savings and Insurance Association (ISI), Vance Arkin-stall, says it is premature to draw any conclusions from the IRD investigation.
“The review is in the initial stages and it is too early to identify any particular issues or whether amendments to the legislation may be necessary,” Arkinstall says.
“It is our understanding of the IRD timetable that the review will be completed towards the end of 2000.”
Carr says the project has completed its initial consultation stage and is now set for further discussions with relevant bodies with the likely outcome of a standard practice statement on the application of the life rules.
“Out of this process the need for remedial legislation may emerge, which will be consid-ered as part of the overall tax policy work programme priorities,” Carr says.
He says the project is looking at issues such as current reserving practices and the impli-cations of new financial reporting standards for life companies.
“The overall aim of the project is to determine, with external consultation, the appropriate reserving basis and to inform the industry accordingly,” Carr says.
Arkinstall says the ISI is working with the IRD to clarify the basis of the complex actu-arial valuations employed by life companies.
“The industry supports the IRD objective of voluntary compliance and consistency of ap-plication of tax legislation,” Arkinstall says.
“The industry is a substantial contributor of revenue with ISI statistics showing that for the year ended 30 June 1999, life insurance and superannuation products contributed over $243 million in taxation, an increase of 57 per cent over the previous year.”
He says the current legislation governing taxation of life insurance companies has not been reviewed since it came into effect in 1991.
“It is a surprise to the industry that it has taken nearly eight years for IRD to get around to conducting this review.”
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