Income from an insurance business of a controlled foreign company
2012 amendment to the definition of 'attributable income' to include income from an insurance business of a controlled foreign company.
Sections EX 20B(3)(f) and EZ 32E of the Income Tax Act 2007
Profits from a business of insurance of a controlled foreign company (a CFC) are generally taxable. However, certain types of insurance income, such as reinsurance claims income, were unintentionally omitted from the definition of "attributable income" in section EX 20B(3) of the Income Tax Act 2007. This means tax losses have arisen even though there are no economic losses. The new Act amends the definition of "attributable income" with retrospective effect, to include income from a business of insurance, however that income arises.
The definition of "attributable income" has been amended to include income from a business of insurance or from being an insurer, however that income arises. Where this leads to a retrospective liability for tax, any consequent use-of->money interest charge will be relieved.
Section EX 20B(3)(f)
Section EX 20B(3)(f) has been amended to include income from a business of insurance, however that income arises. This includes reinsurance income, third-party recoveries and the like.
Income from a business of insurance is explicitly supplemented by income received by a person from being an insurer. The income will be included even if the insurer is an insurer for just one person and might not be considered to be "carrying on an insurance business" according to the ordinary meaning of that phrase.
Section EZ 32E
The change to section EX 20B is retrospective. As a consequence, tax liabilities for past years may arise and use-of-money interest could be imposed. Section EZ 32D relieves such interest if it arises.
The interest is relieved if a person took a tax position before the enactment of the amendment, and the enactment results in an additional tax liability. Interest is not imposed on the relevant addition, for the period from the initial due date until the later of 30 June 2012 or a revised due date determined by Inland Revenue for the payment of the interest.
The amendments apply for income years beginning on or after 1 July 2009, which corresponds with the application date for the reformed controlled foreign company rules.