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Income Tax Act, 1962 (Act 58 of 1962)

Chapter II: The Taxes

Part I: Normal Tax

29B. Mark-to-market taxation in respect of long-term insurers

 

(1) For the purposes of this section, unless the context otherwise indicates, any word or expression that has been defined in section 29A must bear the same meaning as defined in that section, and—

 

'Category III Financial Services Provider'

means a financial services provider as defined in section 1 of the Financial Advisory and Intermediary Services Act, 2002 (Act No. 37 of 2002), that has been issued with a Category III licence in terms of that Act;

 

'market value'

in relation to any asset placed in any policyholder fund as contemplated in section 29A(4), means—

(a) where that asset constitutes a financial instrument that is listed on—
(i) an exchange as defined in section 1 of the Financial Markets Act and licensed under section 9 of that Act; or

[Paragraph (a) substituted by section 78(1)(a) of Act No. 31 of 2013 - effective 3 June 2013]

(ii) an exchange in a country other than the Republic which has been recognised by the Minister as contemplated in paragraph (c) of the definition of 'recognised exchange' in paragraph 1 of the Eighth Schedule,

the sum which a person having the right to freely dispose of that asset might reasonably expect to obtain from a sale of that asset in the open market; or

(b) where that asset is an asset other than an asset contemplated in paragraph (a), the value of that asset as taken into account in determining the investment value of policies as reported to the owners of the policies in respect of the policyholder fund in which the asset is so placed; and

 

'realisation year'

in relation to an insurer, means the first year of assessment of that insurer that ends on or after 29 February 2016.

[Definition substituted by section 9(1)(a) of Act No. 13 of 2016 - effective 29 February 2016]

 

(2) An insurer must be deemed to have disposed of each asset held by that insurer on 29 February 2016, at the close of the day, in respect of all its policyholder funds, other than an asset that constitutes—

[Words preceding subsection (2)(a) substituted by section 9(1)(b) of Act No. 13 of 2016 - effective 29 February 2016]

(a) an instrument as defined in section 24J(1);
(b) an interest rate agreement as defined in section 24K(1);
(c) a contractual right or obligation the value of which is determined directly or indirectly with reference to—

(i)        an instrument contemplated in paragraph (a);

(ii)        an interest rate agreement contemplated in paragraph (b); or

(iii)        any specified rate of interest;

(d)        trading stock; or

(e)        a policy of reinsurance.

 

(3) Where an asset is deemed to have been disposed of by an insurer as contemplated in subsection (2) on the date contemplated in that subsection—
(a) that asset must be deemed to have been so disposed of on that date for an amount received or accrued equal to the market value  of the asset on that date; and
(b) that insurer must be deemed to have immediately reacquired that asset at an expenditure equal to the market value contemplated in paragraph (a), which expenditure must be deemed to be an amount of expenditure actually incurred for the purposes of paragraph 20(1)(a) of the Eighth Schedule.

 

(4) Where an asset is deemed to have been disposed of by an insurer as contemplated in subsection (2) and that asset, in the hands of that insurer, constitutes an asset as defined in paragraph 1 of the Eighth Schedule, that disposal must not be taken into account for the purposes of determining the amount of any allowance or deduction—
(a) to which that insurer may be entitled in respect of that asset; or
(b) that is to be recovered or recouped by or included in the income of that insurer in respect of that asset.

 

(5)        

(a) In addition to any inclusion in any aggregate capital gain or aggregate capital loss of the policyholder funds of an insurer, that insurer  must, in respect of each of those policyholder funds, include in the aggregate capital gain or aggregate capital loss of each of those funds for the realisation year and each of the two years of assessment following that realisation year an amount equal to 27.75 per cent of an amount determined in terms of paragraph (b).

[Subsection (5)(a) substituted by section 9(1)(c) of Act No. 13 of 2016 - effective 29 February 2016]

(b) The amount to be determined for the purposes of paragraph (a) is an amount equal to the aggregate of all capital gains and capital losses determined in respect of the disposal of any asset as contemplated in subsection (2).
(c) Where a person ceases to conduct the business of an insurer prior to the expiration of the two years of assessment contemplated in paragraph (a), any amount determined in terms of paragraph (b) must, to the extent that the amount has not been included as contemplated in paragraph (a), be so included in the year of assessment during which the person ceases to conduct the business of an insurer.

 

(6) This section does not apply to any asset held by an insurer if the asset is administered by a Category III Financial Services Provider and that asset is held by that insurer solely for the purpose of providing a linked policy as defined in the Long-term Insurance Act.