Taxation of long-term insurers (four funds)
In order to align the taxable premium income from risk policies of long term insurers with the significant amounts of policy-selling expenses, policies representing the risk business of long-term insurers will no longer be taxed in the policyholder funds but rather in the corporate (shareholder) fund. The result of this change, it is suggested, is that significant amounts of policy-selling expenses will be deductible against taxable premium income from risk policies, rather than the relatively smaller investment-income tax base. The reserving treatment as applied to short-term insurers will similarly be applied to this risk business.
Dividend cessions and manufactured dividends
There is current tax legislation dealing with the taxation of dividends in respect of certain cession agreements and manufactured dividend transactions. However, there are instances where income is shifted from taxable to exempt parties, such as dividend cession arrangements. In this regard, a unified treatment of cession arrangements and compensation payments is proposed in order to eliminate any tax leakages that may occur, resulting in mismatches that may reduce ultimate tax due. Dividends will retain their tax nature, and any compensation payments made by the payor will be deductible and any compensation amounts received will be taxable in the hands of the payee.