Tax treatment of income protect being debated
The Inland Revenue is quietly consulting with a group of insurance providers over possible changes to the tax treatment of income protection policies.
Thursday, July 19th 2007, 5:36AM
by Rob Hosking
To put the issue somewhat over-simply, on one side of the issue are insurers who argued premiums for income protection insurance are deductible and others say this is not so, but payments are taxable.
For the IRD the issue is one of clarity of the tax system, as they collect the money at one point or another. "This isn't' a revenue issue for us," the department's chief counsel, Martin Smith, told Good Returns.
For the industry though, if the IRD comes down clearly on one side or the other, and clients have not had their policies crafted the right way, they could end up with less cover than they anticipated.
The IRD has circulated a new interpretation of the ruling around the main insurance companies working in this area. The content of the proposal is confidential, but it is understood the latest move leans more towards making premiums deductible, and thus the payouts taxable.
Smith won't confirm that, but says that if the industry does come back and say it can live with the latest interpretation, that would be welcome.
If not, a move to change the law would be needed, he says.
"At the moment there's different treatment and different understandings by the industry and that's not something we want to see continue.
"Personally I think what we've come up with is an improvement, but we'll have to see what the industry thinks."
Rob Hosking is a Wellington-based freelance writer specialising in political, economic and IT related issues.
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