Page 1130 - SAIT Compendium 2016 Volume2

EXPLANATORY MEMORANDUM ON THE TAXATION LAWS AMENDMENT BILL, 2015
III. Proposal
A. De nition of Risk Policy
It is proposed that the current de nition of ‘risk policy’ be amended to provide that bene ts cannot exceed the amount of premiums receivable, except where all or substantially the whole of the policy bene ts are payable due to death, disability, illness or unemployment and excludes a contract of insurance in terms of which annuities are being paid.
B. Once-off election
It is further proposed that all long-term insurers should be granted a once-off election, to move all its existing risk policies or a class of policies that share substantially similar contractual rights and obligations that would have constituted risk policies if it was issued prior to 1 January 2016, to the risk policy fund without triggering any negative tax consequences. The election must be exercised by the long-term insurer in the tax return for the year of assessment ending on or after 31 December 2015. Once the election has been made, the long term insurer will not be allowed to opt out of the election. If the long-term insurer elects to move all its existing risk or a class of policies that share substantially similar contractual rights and obligations to the risk policy fund it must transfer assets and liabilities with regard to that policies from any of the three policyholder funds, namely the untaxed policyholder fund, individual policyholder fund and the company policyholder fund to the risk policy fund. The transfer of the assets must be made at the value determined at the end of the previous year of assessment. This transfer of assets and liabilities in respect of existing risk policies from the policyholder funds to the risk policy fund will be exempt from tax.
Where capital assets are disposed of by a policyholder fund to the risk policy fund the policyholder fund will be deemed to have disposed of the assets at the base cost thereof at the date of the disposal. The policyholder fund that disposes of the assets and the risk policy fund that acquired the assets will be deemed to be the same person with regard to the date of acquisition of the assets and the value of the assets. Roll-over relief will therefore apply with regard to the risk policy fund. The same principles will apply mutatis mutandis where the assets that are disposed of by the policyholder fund to the risk policy fund is trading stock.
IV. Effective date
The proposed amendments come into operation on 1 January 2016 and apply in respect of years of assessment commencing on or after that date.
3.12 LIMITATION OF UNWARRANTED RELIEF FROM TAXATION IN RESPECT OF FOREIGN REINSURANCE BY LONG TERM INSURERS
[Applicable provisions: Section 29A(11)(g)]
I. Background
In 2014, amendments were made to the legislation so that premiums and reinsurance claims received and claims and reinsurance premiums paid shall be disregarded: Provided that where a reinsurance claim is received by or accrues to an insurer in respect of a reinsurance policy (other than a policy that would have constituted a risk policy had it 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 reinsurance policy an amount equal to that reinsurance claim less the aggregate amount of reinsurance premiums incurred or paid in terms of that reinsurance policy which relates to that reinsurance claim.
II. Reason for change
The reference to reinsurance claims in the 2014 wording of section 29A(11)(g) created further loopholes. It has come to our attention that the 2014 changes created a further loophole as some long term insurers were no longer referring to ‘reinsurance claims’ but just to ‘claims’ in order to avoid the application of the provisions of section 29A(11)(g).
III. Proposal
It is proposed to change the wording of subsection 11(g) and the proviso to this subsection to refer to both claims and premiums in respect of policies entered into between the insurer and a non-resident and premiums and reinsurance claims received in respect of a policy entered into between the insurer and a non-resident. Premiums and claims/ reinsurance claims in respect of risk policies will however still be excluded from this provision.
IV. Effective date
The proposed amendments will come into operation on 1 January 2016 and apply in respect of years of assessment commencing on or after that date.
4. INCOME TAX: BUSINESS (INCENTIVES)
4.1 URBAN DEVELOPMENT ZONES – ALLOWING FOR THE DEMARCATION OF ADDITIONAL UDZS PER QUALIFYING MUNICIPALITY
[Applicable provision: Section 13quat]
I. Background
In 2003, the Minister of Finance introduced the Urban Development Zone (UDZ) tax incentive for investment in 16 designated inner cities. The UDZ tax incentive was designed to encourage property investment in central business districts and to address dereliction and dilapidation, and to promote investment in urban renewal. The incentive is in the form of an accelerated depreciation allowance applicable on the value of new buildings and improvements to existing buildings in the qualifying municipalities demarcated as UDZs. In 2013 the window period for the UDZ incentive was extended from 31 March 2014 to 31 March 2020.
1122 SAIT CompendIum oF TAx LegISLATIon VoLume 2