previous
next

International Comparisons: A Brief Summary

21.150. The manner of taxing life insurance in countries with which Australia is broadly comparable presents a pattern of considerable diversity, perhaps indicative of the fact that the taxation of life insurance does not fit easily into any of the accepted categories of taxing income moving through intermediaries.

21.151. The United States and Canada give no tax concessions for premium payments as section 82H does in Australia. New Zealand broadly follows the Australian pattern of giving a concessional deduction (called there a ‘special exemption’) with an overall dollar limitation which applies to the aggregate of life insurance premiums and superannuation contributions. In the United Kingdom relief is allowed in the form of a rebate calculated at the basic rate of tax (currently 33 per cent), subject to a restriction on the amount of premiums qualifying for relief to one-sixth of the taxpayer's total income. Both New Zealand and the United Kingdom have found it necessary to legislate to restrict the availability of the concessions to long-term policies, as was done in Australia in 1973.

21.152. It is in the area of the definition of the taxable income of a life insurance company that the greatest differences emerge.

21.153. The basis used in the United Kingdom is the closest to that employed in Australia. The company is in practice taxed on its investment income but is allowed a deduction for all expenses, including those incurred solely in gaining non-taxable income, such as expenses of selling new policies. Furthermore, the rate of tax is limited to 37½ per cent.

21.154. In New Zealand a life insurance company is taxed on its annual actuarial surplus calculated on a specified basis. The rate of tax is limited to 40 per cent of the general rate of company tax.

21.155. Life insurance companies in the United States are taxed in a complex series of operations which, in substance, include in the tax base both investment income and underwriting profit or loss.

21.156. A life insurance company in Canada is taxed in a manner analogous to the taxation of a general insurance company in Australia. All receipts, whether by way of premiums or investment income, are included in its assessable income; a deduction is allowed of all expenses, claims and increases in policy reserves. In addition, a separate tax is levied on investment income subject to certain deductions.

21.157. The proceeds of life insurance policies are wholly exempt from tax in normal circumstances in New Zealand and the United Kingdom. In Canada policy proceeds received otherwise than on death or permanent disability are taxable to the extent that the amount received exceeds the adjusted cost base of the policy, which is the premiums paid less any dividends paid during the currency of the policy. The United States treatment is similar to the Canadian. Unlike life insurance companies in Australia, New Zealand and United Kingdom, which distribute their surplus in the form of reversionary bonuses, United States and Canadian companies traditionally distribute their surplus in the form of cash dividends.

previous
next