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Income Tax Act, 1962 (Act 58 of 1962)

Chapter II: The Taxes

Part I: Normal Tax

28. Taxation of short-term insurance business

 

(1)        For the purposes of this section—

 

'premium' means a premium as defined in the Short-term Insurance Act;

 

'Short-term Insurance Act'

[Deleted by the Taxation Laws Amendment Act, 2013 (Act No. 31 of 2013) Government Gazette 37158 dated 12 December 2013]

 

'short-term insurance business' means short-term insurance business as defined in the Short-term Insurance Act;

 

'short-term insurer' means a short-term insurer as defined in the Short-term Insurance Act;

 

'short-term policy' means a short-term policy as defined in the Short-term Insurance Act.

 

(2) For the purpose of determining the taxable income derived during a year of assessment by any short-term insurer that is a resident from carrying on short-term insurance business—
(a) a premium received by or accrued to that person in respect of a short-term policy issued by that short-term insurer prior to the date of commencement of the risk cover under that policy shall be deemed to have been received by or accrued to that short-term insurer on the date of commencement of the risk cover under that policy;
(b) an amount of expenditure actually incurred by that short-term insurer in respect of a refund of a premium in respect of a short-term policy issued by that short-term insurer may only be deducted in terms of section 11(a) to the extent that the amount of the premium was included in the gross income of that short-term insurer;
(c) an amount of expenditure payable by that short-term insurer in respect of any claim in terms of a short-term policy—
(i) may be deducted in terms of section 11(a) to the extent that the amount has been paid by that short-term insurer; and
(ii) to the extent that the amount has been paid by the short-term insurer, sections 23(c) and 23H shall not apply to that expenditure;
(d) section 23H shall not apply to expenditure (other than expenditure contemplated in paragraph (c)) incurred in respect of—
(i) a short-term policy issued by that short-term insurer; or
(ii) a policy of reinsurance if that short-term insurer is the holder of that policy; and
(e) an amount recoverable by that short-term insurer in respect of a claim incurred under a short-term policy issued by that short-term insurer shall only be included in the income of that short-term insurer when the amount is received by that short-term insurer.

 

(3) Notwithstanding section 23(e), for the purpose of determining the taxable income derived during any year of assessment by any short-term insurer that is a resident from carrying on short-term insurance business, there shall be allowed as a deduction from the income of that short-term insurer—
(a) the amount which the short-term insurer estimates will become payable in respect of claims incurred under short-term insurance policies as contemplated in section 32(1)(a) of the Short-term Insurance Act that are—
(i) reported but not yet paid, reduced by the amount which the short-term insurer estimates will be paid in respect of those claims under policies of reinsurance; and
(ii) not yet reported, reduced by the amount which the short-term insurer estimates will be paid in respect of those claims under policies of reinsurance, being an amount not less than the amount calculated in accordance with Part II of Schedule 2 to the Short-term Insurance Act,

in respect of that year of assessment; and

(b) the amount of an unearned premium provision calculated in accordance with section 32(1)(b) of the Short-term Insurance Act, being an amount not less than the amount calculated in accordance with Part II of Schedule 2 of that Act in respect of that year of assessment: Provided that a reserve for a cash-back bonus contemplated in paragraph 4.1.1 of Board Notice 169 of 2011, published in Gazette No. 34715 of 28 October 2011, may only be taken into account if the reserve is determined in accordance with a method comprising a best estimate of the liability plus a risk margin, and that method is approved by the Financial Services Board.

 

(4) The total of all amounts deducted from the income of a short-term insurer in respect of a year of assessment in terms of subsection (3) shall be included in the income of that short-term insurer in the following year of assessment.

 

(5)        [Deleted by the Taxation Laws Amendment Act, 2012 (Act No. 22 of 2012)]

 

(6)        [Deleted by the Taxation Laws Amendment Act, 2012 (Act No. 22 of 2012)]

 

(7) In determining the net income, as contemplated in section 9D (2A), derived by any person that is a controlled foreign company from the carrying on outside the Republic of short-term insurance business there shall be deducted from the sum of all premiums (including reinsurance premiums) received by or accrued to that person in respect of the insurance or reinsurance of any risk and other amounts derived from the carrying on of that business, the sum of—
(a) the total amount of the liability incurred in respect of premiums on reinsurance;
(b) the actual amount of the liability incurred in respect of any claims during the foreign tax year, as defined in section 9D(1), of that person in respect of that business, less the value of any claims recovered or recoverable under any contract of insurance, reinsurance, guarantee, security or indemnity; and
(c)
(i) the amount of the liability estimated by that person to become payable in respect of claims incurred under short-term insurance policies; and
(ii) an unearned premium provision:

Provided that no deduction shall be made in terms of this paragraph in respect of a liability incurred as contemplated in paragraph (b);

 

(8)        The deduction contemplated in subsection (7) shall be allowed only—

(a) if the estimate and the provision contemplated in subsection (7)  relate to the carrying on of short-term insurance business as contemplated in subsection (7) by that controlled foreign company;
(b) if the estimate and the provision contemplated in subsection (7)(c) are required by the law of the country in which the controlled foreign company is subject to tax by virtue of residence, domicile or place of effective management;
(c) to the extent that the estimate and provision contemplated in subsection (7)(c) would have been allowed or required in terms of the Short-Term Insurance Act had the liability or provision been incurred in the Republic; and
(d) if the person to whom the income of the controlled foreign company is attributed submits to the Commissioner the information in respect of paragraphs (a), (b) and (c) prescribed by the Commissioner.

 

(9)        Any deduction contemplated in subsection (7) shall be subject to such adjustments as may be made by the Commissioner.

 

(10) The sum of all amounts deducted from the sum of all premiums and other amounts received by or accrued to a controlled foreign company in respect of any foreign tax year, as defined in section 9D(1), in terms of subsection (7)(c) shall be included in the income of that controlled foreign company in the following foreign tax year.

 

(11) In determining the taxable income derived by any person from the carrying on of short-term insurance business as contemplated in subsection (7)—
(a) no deduction shall be allowed in terms of section 11(a), in respect of any liability incurred in respect of reinsurance premiums and any claims in respect of that business; and
(b) the provisions of section 23(e) shall not apply in respect of the liability contemplated in subsection (7)(c).