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Income Tax Act, 1962 (Act 58 of 1962)

Chapter II: The Taxes

Part I: Normal Tax

29A. Taxation of long-term insurers

 

(1)        For the purposes of this section—

 

'adjusted IFRS value'

[Definition inserted by section 47(1)(a) of Act No. 43 of 2014 - effective 1 January 2016, which amendment has been deleted by section 101(1)(a) of the Taxation Laws Amendment Act, 2016 (Act No. 15 of 2016) - effective 20 January 2015]

 

'business'

means any long-term insurance business as defined in section 1 of the Long-term Insurance Act;

 

'insurer'

means any long-term insurer as defined in section 1 of the Long-term Insurance Act;

 

'Long-term Insurance Act'

[Definition deleted by the Taxation Laws Amendment Act, 2013 (Act No. 31 of 2013)]

 

'market value'

in relation to any asset, means the sum which a person having the right freely to dispose of such asset might reasonably expect to obtain from a sale of such asset in the open market;

 

'owner',

in relation to a policy, means the person who is entitled to enforce any benefit provided for in the policy: Provided that where a policy has been—

(a) ceded or pledged solely for the purpose of providing security for the performance of any obligation, the owner shall be the person who retains the beneficial interest in such policy; or
(b) reinsured by one insurer with another insurer, the reinsurance policy shall be deemed to be owned by the owner of the insurance policy so insured;

 

'policy'

means a long-term policy as defined in section 1 of the Long-term Insurance Act;

 

'policyholder fund'

means any fund contemplated in subsection (4)(a), (b) or (c);

 

'risk policy'

means—

(a) any policy issued by the insurer during any year of assessment of that insurer commencing on or after 1 January 2016 under which the benefits payable—
(i) cannot exceed the amount of premiums receivable, except where all or substantially the whole of the policy benefits are payable due to death, disablement, illness or unemployment and excludes a contract of insurance in terms of which annuities are being paid; or
(ii) other than benefits payable due to death, disablement, illness or unemployment, cannot exceed the amount of premiums receivable and excludes a contract of insurance in terms of which annuities are being paid; or

[Paragraph (a) substituted by section 50(1)(b) of the Taxation Laws Amendment Act, 2016 (Act No. 15 of 2016)  - effective 1 January 2016]]

(b) any policy in respect of which an election has been made as contemplated in subsection (13B);

[Definition substituted by section 53(1)(b) of the Taxation Laws Amendment Act, 2015 (Act No. 25 of 2015) - effective 1 January 2016]

 

'risk policy fund'

means the fund contemplated in subsection 4(e);

[Definition inserted by section 47(1)(b) of Act No. 43 of 2014 - effective 1 January 2016]

 

'value of liabilities',

means, in respect of a policyholder fund or a risk policy fund, an amount equal to the value of the liabilities of the insurer in respect of the business conducted by it in the fund concerned calculated on the basis as shall be determined by the chief actuary of the Financial Services Board, appointed in terms of section 13 of the Financial Services Board Act, in consultation with the Commissioner;

[Definition substituted by section 50(1)(c) of the Taxation Laws Amendment Act, 2016 (Act No. 15 of 2016 - effective 1 January 2016]

 

(2) The taxable income derived by any insurer in respect of any year of assessment commencing on or after 1 January 2000, shall be determined in accordance with the provisions of this Act, but subject to the provisions of this section and section 29B.

[Subsection (2) substituted by section 623(1)(a) of Act No. 22 of 2012 - effective 29 February 2012]

 

(3) Every insurer shall establish five separate funds as contemplated in subsection (4), and shall thereafter maintain such funds in accordance with the provisions of this section and section 29B.

[Subsection (3) amended by section 47(1)(d) of Act No. 43 of 2014 - effective 1 January 2016]

 

(4) The funds referred to in subsection (3) shall be—
(a) a fund, to be known as the untaxed policyholder fund, in which shall be placed assets having a market value equal to the value of liabilities determined in relation to—
(i)
(aa) business other than business relating to a risk policy carried on by the insurer with; and
(bb) any policy other than a risk policy, of which the owner is,

any pension fund, pension preservation fund, provident fund, provident preservation fund, retirement annuity fund or benefit fund;

[Subsection (4)(a)(i) substituted by section 47(1)(e) of Act No. 43 of 2014 - effective 1 January 2016]

(ii) any policy, other than a risk policy, of which the owner is a person where any amount constituting gross income of whatever nature would be exempt from tax in terms of section 10 were it to be received by or accrue to that person:

[Words preceding proviso of subsection (4)(a)(ii) substituted by section 47(1)(f) of Act No. 43 of 2014 - effective 1 January 2016]

Provided that an insurer shall not deal with a policy in terms of the provisions of this subparagraph unless it has satisfied itself beyond all reasonable doubt that the owner of such policy is such a person or body;

(iii) any annuity contracts entered into by it in respect of which annuities are being paid;
(iv) any policy that is a tax free investment as contemplated in section 12T.

[Subsection (4)(a)(iv) inserted by section 47(1)(g) of Act No. 43 of 2014 - effective 1 March 2015]

(b) a fund, to be known as the individual policyholder fund, in which shall be placed assets having a market value equal to the value of liabilities determined in relation to any policy (other than a policy contemplated in paragraphs (a) or (e)) of which the owner is any person other than a company;

[Subsection (4)(b) substituted by section 47(1)(h) of Act No. 43 of 2014 - effective 1 January 2016]

(c) a fund, to be known as the company policyholder fund, in which shall be placed assets having a market value equal to the value of liabilities determined in relation to any policy (other than a policy contemplated in paragraphs (a) or (e)) of which the owner is a company;

[Subsection (4)(c) substituted by section 47(1)(h) of Act No. 43 of 2014 - effective 1 January 2016]

(d) a fund, to be known as a corporate fund, in which shall be placed all the assets held by the insurer, and all liabilities owned by it, other than assets and liabilities contemplated in paragraphs (a), (b), (c) and (e); and

[Subsection (4)(d) substituted by section 47(1)(h) of Act No. 43 of 2014 - effective 1 January 2016]

(e) a fund, to be known as a risk policy fund, in which shall be placed assets having a market value equal to the value of liabilities determined in relation to any risk policy.

[Subsection (4)(b) substituted by section 47(1)(h) of Act No. 43 of 2014 - effective 1 January 2016]

 

(5) For the purposes of subsection (4), where the owner of a policy is the trustee of any trust or where two or more owners jointly own a policy—
(a) if all the beneficiaries in such trust or all such joint owners are funds, persons or bodies contemplated in subsection (4)(a), the owner of such policy shall be deemed to be such a fund, person or body, as the case may be; or
(b) where paragraph (a) is not applicable and all the beneficiaries in such trust or all such joint owners are persons other than a company, the owner of such policy shall be deemed to be a person other than a company; or
(c) where paragraphs (a) and (b) are not applicable, the owner of such policy shall be deemed to be a company.

 

(6) An insurer who becomes aware that, in consequence of—
(a) a change of ownership of any policy issued by it;
(b) any change affecting the status of the owner of any policy; or
(c) an annuity becoming payable in terms of a policy,

the assets held by it in relation to such policy should in terms of the provisions of subsection (4) be held in a fund other than the fund in which such assets are actually held, shall forthwith transfer from such last-mentioned fund to such first-mentioned fund assets having a market value equal to the value of liabilities determined on the date of such transfer in relation to the said policy.

[Subsection (6) substituted by section 47(1)(j) of Act No. 43 of 2014 - effective 1 January 2016]

 

(7) Every insurer shall within a period of three months after the end of every year of assessment redetermine the value of liabilities in relation to each of its policyholder funds and its risk policy fund as at the last day of that year of assessment, and—
(a) where the market value of the assets actually held by it in any such fund exceeds the value of liabilities in relation to such fund on such last day, it shall within that period transfer from such fund to its corporate fund assets having a market value equal to such excess; or
(b) where the market value of the assets actually held by it in any such fund is less than the value of liabilities in relation to such fund on such last day, it shall within that period transfer from its corporate fund to such fund assets having a market value equal to the shortfall,

and such transfer shall be made with effect from that day and for the purposes of this section be deemed to have been made on such last day.

[Subsection (7) substituted by section 47(1)(k) of Act No. 43 of 2014 - effective 1 January 2016]

 

(8) Any transfer of an asset effected by an insurer between one fund and another fund shall be effected by way of a disposal of such asset at the market value thereof and shall for the purposes of this Act be treated as an acquisition or disposal of such asset, as the case may be, in each such fund.

[Subsection (8) substituted by section 15(1)(a) of Act No. 5 of 2001]

 

(9) Subject to the provisions of subsection (11)(d), there shall be exempt from tax any income received by or accrued to an insurer from assets held by it in, and business conducted by it in relation to, its untaxed policyholder fund.

 

(10) The taxable income derived by an insurer in respect of its individual policyholder fund, its company policyholder fund, its corporate fund and its risk policy fund shall be determined separately in accordance with the provisions of this Act as if each such fund had been a separate taxpayer and the individual policyholder fund, company policyholder fund, untaxed policyholder fund, corporate fund and its risk policy fund shall be deemed to be separate companies which are connected persons in relation to each other for the purposes of subsections (6), (7) and (8) and sections 20, 24I, 24J, 24K, 24L, 26A and 29B and the Eighth Schedule to this Act.

[Subsection (10) substituted  by section 47(1)(l) of Act No. 43 of 2014 - effective 1 January 2016]

 

(11) In the determination of the taxable income derived by an insurer in respect of its individual policyholder fund, its company policyholder fund, its corporate fund and its risk policy fund in respect of any year of assessment—

[Words preceding subsection (11)(a) substituted by section 47(1)(m) of Act No. 43 of 2014 - effective 1 January 2016]

(a) the amount of any expenses, allowances and transfers to be allowed as a deduction in the policyholder funds in terms of this Act shall be limited to the total of—

[Words preceding subsection (11)(a)(i) substituted by section 77(1)(b) of Act No. 31 of 2013 - effective 1 January 2013]

(i) the amount of expenses and allowances directly attributable to the income of such fund;
(ii) such percentage of the amount of—
(aa) all expenses allocated to such fund which are directly incurred during such year of assessment in respect of the selling and administration of policies; and
(bb) all expenses and allowances allocated to such fund which are not included in subparagraph (i), but excluding any expenses directly attributable to any amounts received or accrued which do not constitute income as defined in section 1,

[Subsection 11(a)(ii)(bb) substituted by section  47(1)(n) of Act No. 43 of 2014 - effective 1 January 2013]

which percentage shall be determined in accordance with the formula:

 

Y=

X + U

Z

 

in which formula—

(A) 'Y' represents the percentage to be applied to such amount;
(B) 'X' represents an amount which would have been equal to the taxable income calculated in respect of such fund and in respect of such year of assessment before taking into account any deduction during such year of—
(AA) any amount incurred in respect of the selling and administration of policies;
(BB) any indirect expenses allocated to such fund;
(CC) the balance of assessed losses as contemplated in section 20(1)(a); and;
(DD) any amount determined in terms of subparagraph (iii);
(C) "U" represents the amount determined under subitem (DD) of item (D) multiplied by 0,4 in the case of the individual policyholder fund and 0,8 in the case of the company policyholder fund; and

[Subsection (11)(a)(ii)(C) substituted by section 8(1) of Act No. 13 of 2016 - effective 1 March 2016]

(D) 'Z' represents an amount equal to the amount represented by X in the formula, plus—
(AA) the aggregate amount of all dividends that are exempt from normal tax and that are received in respect of such fund during such year;
(BB) the aggregate amount of all foreign dividends received in respect of such fund during such year, less any amount of that aggregate amount that is included in taxable income;
(CC) any portion of the aggregate capital gain in respect of such fund and in respect of such year that is not, by virtue of paragraph 10 of the Eighth Schedule, included in the taxable income in respect of such fund and in respect of such year; and
(DD) the difference between the market value as defined in section 29B and the expenditure incurred in respect of any asset held at the end of the year of assessment, reduced by the amount determined in terms of this subparagraph for the immediately preceding year of assessment: Provided that if the resultant amount is negative the amount shall be deemed to be nil; and;

[Words following subsection (11)(a)(ii)(bb) substituted by section 47(1)(n) of Act No. 43 of 2014 - effective 1 January 2013]]

(iii) such percentage, determined in accordance with the formula contemplated in subparagraph (ii), of 30 per cent of the amount transferred from the policyholder fund in terms of subsection (7)(a), to the extent that the amount of such transfer is required to be included in the income of the corporate fund during such year of assessment in terms of paragraph (d)(i) of this subsection: Provided that the amount of the deduction in terms of this subparagraph shall not exceed the taxable income of the policyholder fund before deducting an amount in terms of this subparagraph;

[Subsection (11)(a)(iii) substituted by section 50(1)(d) of the Taxation Laws Amendment Act, 2016 (Act No. 15 of 2016) - effective 1 January 2016]

(b) [Subsection (11)(b) deleted by section 30 of the Revenue Laws Amendment Act, 74 of 2002];
(bA) a deduction is allowed in determining the taxable income of the risk policy fund of an amount equal to the amount of the transfer from the risk policy fund to the corporate fund in respect of that year of assessment, but not exceeding the taxable income of the risk policy fund before deducting an amount in terms of this paragraph;

[Subsection (11)(bA) inserted by section 47(1)(o) of Act No. 43 of 2014 - effective 1 January 2016]

(c)        [Subsection (11)(c) deleted by section 36 of Act No. 59 of 2000];

(d)        any amount required to be transferred—

(i) to the corporate fund in terms of the provisions of subsection (7)(a) shall be included in the income of the corporate fund; and
(ii) from the corporate fund in terms of the provisions of subsection (7)(b) shall not be deducted from the income of the corporate fund,

for the purposes of determining the taxable income of such fund for the year of assessment in respect of which the value of liabilities in relation to its policyholder funds or risk policy fund was redetermined in terms of that subsection: Provided that where any amount is transferred from the corporate fund to any policyholder fund or risk policy fund as contemplated in subparagraph (ii), any subsequent transfers from the policyholder fund to the corporate fund of any amounts which in the aggregate do not exceed the total amount of such transfer, shall not be included in the income of the corporate fund in terms of the provisions of subparagraph (i) of this paragraph;

[Words following paragraph (d)(ii) substituted by section 47(1)(p) of Act No. 43 of 2014 - effective 1 January 2016]

(e) subject to the provisions of paragraphs (a)(iii) and (bA), no amount transferred to or from the corporate fund in terms of the provisions of subsection (7), shall be deducted from or included in the income of the policyholder fund or risk policy fund from or to which such amount was transferred, as the case may be;

[Subsection (11)(e) substituted by section 47(1)(q) of Act No. 43 of 2014 - effective 1 January 2016]

(f) the amount of any transfer contemplated in subsection (6) or (8) shall not be deducted from the income of the fund from which it is transferred and shall not be included in the income of the fund to which it is transferred;

[Subsection (11)(f) substituted by section 62(1)(f) of Act No. 22 of 2012 - effective 1 January 2013]

(g)
(i) premiums and claims in respect of a policy entered into between that insurer and a person other than a resident other than premiums and claims in respect of a risk policy;
(ii) premiums and reinsurance claims received and claims and reinsurance premiums paid in respect of policies, other than policies contemplated in subparagraph (i) or risk policies;

shall be disregarded: Provided that where an amount in respect of a claim is received by or accrues to an insurer in respect of a policy (other than a policy that would have constituted a risk policy had that policy been concluded on 1 January 2016) entered into between that insurer and a person other than a resident, there must be included in the gross income of the policyholder fund associated with that policy an amount equal to that claim less the aggregate amount of premiums incurred or paid in terms of that policy which relates to that claim;

[Subsection (11)(g) substituted by section 53(1)(e) of the Taxation Laws Amendment Act, 2015 (Act No. 25 of 2015]

(h) no amount may be deducted,other than in the corporate fund or risk policy fund, by way of an allowance in respect of an asset as defined in the Eighth Schedule other than a financial instrument.

[Subsection (11)(h) substituted by section 50(1)(e) of the Taxation Laws Amendment Act, 2016 (Act No. 15 of 2016) - effective 1 January 2016]

 

(11A) [Subsection (11A) deleted by section 77(1)(h) of the Taxation Laws Amendment Act, 2013 (Act No. 31 of 2013 - effective 1 January 2013]

 

(11B) [Subsection (11B) deleted by section 77(1)(h) of the  Taxation Laws Amendment Act, 2013 (Act No. 31 of 2013) - effective 1 January 2013]

 

(11C) [Subsections (11C) deleted by section 77(1)(h) of the Taxation Laws Amendment Act, 2013 (Act No. 31 of 2013) - effective 1 January 2013]

 

(12) In the allocation of any receipt, accrual, asset, expenditure, liability or payment to any fund contemplated in subsection (4), an insurer shall, when establishing such fund and at all times thereafter—
(a) to the extent to which such receipt, accrual, asset, expenditure, liability or payment relates exclusively to business conducted by it in any one fund, allocate such receipt, accrual, asset, expenditure, liability or payment to that fund; and
(b) to the extent to which such receipt, accrual, asset, expenditure, liability or payment does not relate exclusively to business conducted by it in any one fund, allocate such receipt, accrual, asset, expenditure, liability or payment in a manner which is consistent with and appropriate to the manner in which its business is conducted.

[Subsection (12) substituted by section 50(1)(f) of the Taxation Laws Amendment Act, 2016 (Act No. 15 of 2016) - effective 1 January 2017]

 

(13) [Subsection (13) deleted by the Taxation Laws Amendment Act No. 7 of 2010].

 

(13A)        

 

(a) Notwithstanding section 23(e), in the determination of the taxable income derived by an insurer in respect of its risk policy fund in respect of any year of assessment, there shall be allowed as a deduction from the income of the risk policy fund an amount equal to the adjusted IFRS value for the year of assessment in respect of risk policies.
(b) Any amount deducted in terms of paragraph (a) during any year of assessment shall be included in the income of the risk policy fund in the following year of assessment.

[Subsection 13A inserted by section 47(1)(u) of Act No. 43 of 2014 - effective 1 January 2016]

 

(13B)        

(a) An insurer may elect that all policies or one or more classes of policies that share substantially similar contractual rights and obligations that would have constituted risk policies under paragraph (a) of the definition of ‘risk policy’ in subsection (1) had those policies been issued during any year of assessment commencing on or after 1 January 2016 be allocated to the risk policy fund with effect from the first day of the year of assessment commencing on or after 1 January 2016, which election—
(i) is binding for the duration of the policies in respect of which the election is made; and
(ii) must be in a manner and form as the Commissioner may prescribe.
(b) Assets with a value equal to the value of liabilities, as determined at the end of the previous year of assessment in respect of policies allocated to the risk policy fund in terms of paragraph (a), must be allocated to the risk policy fund with effect from the first day of the year of assessment commencing on or after 1 January 2016.
(c) The amount of assets as contemplated in paragraph (b) shall not be deducted from the income of the policyholder fund from which it is transferred and shall not be included in the income of the risk policy fund to which it is transferred.
(d) Where as a result of the election as contemplated in paragraph (a) an asset as defined in paragraph 1 of the Eighth Schedule, other than an asset that is trading stock, is disposed of by the policyholder fund to a risk policy fund—
(i) the policyholder fund that disposes of that asset must be deemed to have disposed of that asset for an amount equal to the base cost of that asset on the date of that disposal; and
(ii) the policyholder fund that disposes of that asset and the risk policy fund that acquires that asset must, for purposes of determining any capital gain or capital loss by the risk policy fund that acquires that asset in respect of a disposal of that asset, be deemed to be one and the same person with respect to—

[Words preceding subsection (13B)(d)(ii)(aa) substituted by section 50(1)(g) of the Taxation Laws Amendment Act, 2016 (Act No. 15 of 2016)]

(aa) the date of acquisition of that asset by the policyholder fund that disposes of that asset and the amount and date of incurral of any expenditure by the policyholder fund that disposes of that asset in respect of that asset allowable in terms of paragraph 20 of the Eighth Schedule; and
(bb) any valuation of that asset effected by the policyholder fund of that asset as contemplated in paragraph 29(4) of the Eighth Schedule.
(e) Where as a result of the election as contemplated in paragraph (a) a policyholder fund disposes of an asset that is held as trading stock to a risk policy fund that acquires that asset as trading stock—
(i) that asset must be deemed to have been disposed of in an amount equal to the amount taken into account in terms of section 11(a) or 22(1) or (2) in respect of that asset by the policyholder fund; and
(ii) the policyholder fund and the risk policy fund must, for purposes of determining any taxable income derived by the risk policy fund, be deemed to be one and the same person with respect to the date of acquisition of that asset and the amount and date of incurral of any cost or expenditure incurred in respect of that asset as contemplated in section 11(a) or 22 (1) or (2).

[Subsection 13(B) inserted by section 53(1)(f) of the Taxation Laws Amendment Act, 2015 (Act No. 25 of 2015]

 

 

(14) [Subsection (14) deleted by section 52 of the Taxation Laws Amendment Act, 2010 (Act No. 7 of 2010)]

 

(15) [Subsection (15) deleted by section 23(b) of the Revenue Laws Amendment Act, 2006 (Act No. 20 of 2006)]

 

(16) [Subsection (16) deleted section 23(c) of the Revenue Laws Amendment Act, 2006 (Act No. 20 of 2006)]