Taxation of Business of Insurance following the adoption of IFRS 17
Taxation of Business of Insurance following the adoption of IFRS 17
Legal notice 334 of 2024, published on 6th December 2024, provides for special tax provisions applicable to insurance companies when they first adopt IFRS 17.
IFRS 17 has brought significant changes to the way that insurance companies report their results, in particular with respect to the recognition of revenue and income. One of the largest impacts on adoption, is undoubtedly on the retained earnings brought forward that is adjusted to factor in the reporting of prior year profits utilising IFRS 17. It is for this specific reason that LN 334 was required to amortise the tax impact that could arise.
The legal notice provides that the change, if any, to an insurer’s accumulated profits or losses brought to charge in the adoption year of assessment as a direct result of the insurer’s implementation of IFRS 17, is referred to as follows:
- (a) if the change consists of an increase in the accumulated profits or a reduction in the accumulated losses, this shall be referred to as "adoption gains"; and
- (b) if the change consists of an increase in the accumulated losses or a reduction in the accumulated profits, this shall be referred to as "adoption losses".
Any adoption gains shall be considered as constituting gains or profits forming part of the adjusted profit before tax brought to charge in the adoption year of assessment. Any adoption losses, shall be considered as losses in terms of article 14(1) (g) of the Income Tax Act (ITA) incurred in the adoption year of assessment, and all provisions of the ITA relating to the deductibility of such losses, shall apply mutatis mutandis thereto.
Notwithstanding this, an insurer may elect, to spread the payment of the tax chargeable on any adoption gains, over a maximum period of five (5) consecutive years commencing from the adoption year of assessment. Such election is irrevocable. Should an insurer, for any reason whatsoever, cease to be subject to tax in terms of these rules, the deferral of payment granted in terms of this election shall be immediately discontinued and any outstanding balance shall be deemed to have become due by the tax settlement date of the last year of assessment relative to such accounting period within which the insurer is subject to tax.