IRD audits life offices
The Inland Revenue Department believes life offices in New Zealand may not have been paying sufficient tax and it has launched an investigation into reserving practices.
Wednesday, November 10th 1999, 12:00AM
The department's actuarial reserving project has been described by a number of key people as one of the biggest issues facing life offices.
Good Returns understands two major life offices are being audited by IRD and there is the possibility they have paid insufficient tax.
Concerns have also been raised that the IRD may try to make retrospective changes to the rules and assess tax from previous years.
In a statement IRD says the project is being undertaken by the Insurance and Superannuation Portfolio of Corporates and is part of IRD's normal compliance activity.
"The project is looking at a number of areas, including current reserving practices and implications arising from the introduction of Financial Reporting Standard No. 34 which uses the margin on services method (applies to accounting periods ending on or after 31 December 1999)."
The overall aim of the project is to determine, with external consultation, the appropriate reserving basis and to inform the industry accordingly.
However, industry experts are concerned about the external advice being sought. They say it is coming from a source which has very firm views on the subject, namely that insufficient tax has been paid.
IRD says it plans to hold discussions with relevant bodies, including the NZ Society of Actuaries, and if appropriate issue a standard practice statement on the application of the life rules.
"Out of this process the need for remedial legislation may emerge, which will be considered as part of the overall tax policy work programme priorities. It is anticipated this will be completed by 31 December 2000, however this will depend on a number of factors."
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