(2)     The taxable income derived by any insurer in respect of any year of assessment commencing on or after 1 January 2000, shall be determined in accordance with the provisions of this Act, but subject to the provisions of this section and section 29B.

(3)     Every insurer shall establish five separate funds as contemplated in subsection (4), and shall thereafter maintain such funds in accordance with the provisions of this section and section 29B.

[Subsection (3) amended by section 23 of Act 20 of 2006 and substituted by section 62 of Act 22 of 2012 and section 47 of Act 43 of 2014 effective on 1 January 2016]

(4)     The funds referred to in subsection (3) shall be –

(a)     a fund, to be known as the untaxed policyholder fund, in which shall be placed assets having a market value equal to the value of liabilities determined in relation to –

(i)

(aa)    business other than business relating to a risk policy carried on by the insurer with; and

(bb)   any policy other than a risk policy, of which the owner is,

any pension fund, pension preservation fund, provident fund, provident preservation fund, retirement annuity fund or benefit fund,

[Subparagraph (i) substituted by section 21 of Act 3 of 2008 and section 47 of Act 43 of 2014 effective on 1 January 2016]

(ii)     any policy, other than a risk policy, of which the owner is a person where any amount constituting gross income of whatever nature would be exempt from tax in terms of section 10 were it to be received by or accrue to that person : Provided that an insurer shall not deal with a policy in terms of the provisions of this subparagraph unless it has satisfied itself beyond all reasonable doubt that the owner of such policy is such a person or body;

[Subparagraph (ii) amended by section 16 of Act 16 of 2004]

[Words preceding the proviso subtituted by section 47 of Act 43 of 2014 effective on 1 January 2016]

(iii)    any annuity contracts entered into by it in respect of which annuities are being paid;

 

(iv)    any policy that is a tax free investment as contemplated in section 12T.

[Subparagraph (iv) added by section 47 of Act 43 of 2014 effective on 1 March 2015]

(b)     a fund, to be known as the individual policyholder fund, in which shall be placed assets having a market value equal to the value of liabilities determined in relation to any policy, (other than a policy contemplated in paragraphs (a) or (e)) of which the owner is any person other than a company;

[Paragraph (b) substituted by section 47 of Act 43 of 2014 effective on 1 January 2016]

(c)     a fund, to be known as the company policyholder fund, in which shall be placed assets having a market value equal to the value of liabilities determined in relation to any policy (other than a policy contemplated in paragraphs (a) or (e)) of which the owner is a company;

[Paragraph (c) substituted by section 47 of Act 43 of 2014 effective on 1 January 2016]

(d)     a fund, to be known as a corporate fund in which shall be placed all the assets held by the insurer and all liabilities owned by it, other than assets and liabilities contemplated in paragraph (a), (b), (c) and (e); and

[Paragraph (d) substituted by section 47 of Act 43 of 2014 effective on 1 January 2016]

(e)     a fund, to be known as a risk policy fund, in which shall be placed assets having a market value equal to the value of liabilities determined in relation to any risk policy.

[Paragraph (e) added by section 47 of Act 43 of 2014 effective on 1 January 2016]

(5)     For the purposes of subsection (4), where the owner of a policy is the trustee of any trust or where two or more owners jointly own a policy –

(a)     if all the beneficiaries in such trust or all such joint owners are funds, persons or bodies contemplated in subsection (4)(a), the owner of such policy shall be deemed to be such a fund, person or body, as the case may be; or

(b)     where paragraph (a) is not applicable and all the beneficiaries in such trust or all such joint owners are persons other than a company, the owner of such policy shall be deemed to be a person other than a company; or

(c)     where paragraphs (a) and (b) are not applicable, the owner of such policy shall be deemed to be a company.

(6)       An insurer who becomes aware that, in consequence of-

(a)     a change of ownership of any policy issued by it;

(b)     any change affecting the status of the owner of any policy; or

(c)     an annuity becoming payable in terms of a policy,

the assets held by it in relation to such policy should in terms of the provisions of subsection (4) be held in a fund other than the fund in which such assets are actually held, shall forthwith transfer from such last-mentioned fund to such first-mentioned fund assets having a market value equal to the value of liabilities determined on the date of such transfer in relation to the said policy.

[Subsection (6) substituted by section 47 of Act 43 of 2014 effective on 1 January 2016]

(7)     Every insurer shall within a period of three months after the end of every year of assessment redetermine the value of liabilities in relation to each of its policyholder funds and its risk policy fund as at the last day of that year of assessment, and-

(a)     where the market value of the assets actually held by it in any such fund exceeds the value of liabilities in relation to such fund on such last day, it shall within that period transfer from such fund to its corporate fund assets having a market value equal to such excess; or

(b)     where the market value of the assets actually held by it in any such fund is less than the value of liabilities in relation to such fund on such last day, it shall within that period transfer from its corporate fund to such fund assets having a market value equal to the shortfall,

and such transfer shall be made with effect from that day and for the purposes of this section be deemed to have been made on such last day.

[Subsection (7) amended by section 62 of Act 22 of 2012 and substituted by section 47 of Act 43 of 2014 effective on 1 January 2016]

(8)     Any transfer of an asset effected by an insurer between one fund and another fund shall be effected by way of a disposal of such asset at the market value thereof and shall for the purposes of this Act be treated as an acquisition or disposal of such asset, as the case may be, in each such fund.

(9)     Subject to the provisions of subsection (11) (d), there shall be exempt from tax any income received by or accrued to an insurer from assets held by it in, and business conducted by it in relation to, its untaxed policyholder fund.

(10)   The taxable income derived by an insurer in respect of its individual policyholder fund, its company policyholder fund, its corporate fund and its risk policy fund shall be determined separately in accordance with the provisions of this Act as if each such fund had been a separate taxpayer and the individual policyholder fund, company policyholder fund, untaxed policyholder fund, corporate fund and its risk policy fund shall be deemed to be separate companies which are connected persons in relation to each other for the purposes of subsections (6), (7) and (8) and sections 20, 24I, 24J, 24K, 24L, 26A and 29B and the Eighth Schedule to this Act.

[Subsection (10) substituted by section 15 of Act 5 of 2001, section 39 of Act 60 of 2001, section 62 of Act 22 of 2012 and section 47 of Act 43 of 2014 effective on 1 January 2016]

(11)   In the determination of the taxable income derived by an insurer in respect of its individual policyholder fund, its company policyholder fund, its corporate fund and its risk policy fund in respect of any year of assessment-

[Words preceding paragraph (a) substituted by section 47 of Act 43 of 2014 effective on 1 January 2016]

(a)     the amount of any expenses, allowances and transfers to be allowed as a deduction in the policyholder funds in terms of this Act shall be limited to the total of –

(i)      the amount of expenses and allowances directly attributable to the income of such fund;

(ii)     such percentage of the amount of –

(aa)   all expenses allocated to such fund which are directly incurred during such year of assessment in respect of the selling and administration of policies; and

(bb)   all expenses and allowances allocated to such fund which are not included in subparagraph (i), but excluding any expenses directly attributable to any amounts received or accrued which do not constitute income as defined in section 1,

which percentage shall be determined in accordance with the formula

Y = X + U

Z

in which formula-

(A)    “Y” represents the percentage to be applied to such amount;

(B)    “X” represents an amount which would have been equal to the taxable income calculated in respect of such fund in respect of such year of assessment before taking into account any deduction during such year of-

(AA)  any amount incurred in respect of the selling and administration of policies;

(BB)  any indirect expenses allocated to such fund;

(CC)  the balance of assessed losses as contemplated in section 20(1)(a); and

(DD) any amount determined in terms of subparagraph (iii);

(C)    “U” represents the amount determined under subitem (DD) of item (D) multiplied by 0.4 in the case of the individual policyholder fund and 0.8 in the case of the company policyholder fund; and

[Item (C) substituted by section 53(1)(d) of Act 25 of 2015 and by section 8(1) of Act 13 of 2016 deemed effective on 1 March, 2016 and applicable in respect of years of assessment ending on or after that date]

(D)    “Z” represents an amount equal to the amount represented by X in the formula, plus-

(AA)  the aggregate amount of all dividends that are exempt from normal tax and that are received in respect of such fund during such year;

(BB)  the aggregate amount of all foreign dividends received in respect of such fund during such year, less any amount of that aggregate amount that is included in taxable income;

(CC)  any portion of the aggregate capital gain in respect of such fund and in respect of such year that is not, by virtue of paragraph 10 of the Eighth Schedule, included in the taxable income in respect of such fund and in respect of such year; and

(DD)  the aggregate amount of the differences between the market value as defined in section 29B and the expenditure incurred in respect of all assets allocated to the fund at the end of the year of assessment, reduced by the amount determined in terms of this subitem for the immediately preceding year of assessment: Provided that if the resultant aggregate amount is negative the amount shall be deemed to be nil; and

[Sub-item (DD) substituted by section 22(b) of Act 20 of 2021]

[Item (bb) amended by section 62 of Act 22 of 2012 and section 77 of Act 31 of 2013 and substituted by section 47 of Act 43 of 2014 effective on 1 January 2013]

(iii)    such percentage, determined in accordance with the formula contemplated in subparagraph (ii), of 30 per cent of the amount transferred from the policyholder fund in terms of subsection (7)(a), to the extent that the amount of such transfer is required to be included in the income of the corporate fund during such year of assessment in terms of paragraph (d)(i) of this subsection: : Provided that the amount of the deduction in terms of this subparagraph shall not exceed the taxable income of the policyholder fund before deducting an amount in terms of this subparagraph;

[Words preceding the proviso substituted by section 62 of Act 22 of 2012 effective on 1 January 2013]

[Proviso substituted by section 50 of Act 15 of 2016 effective on 1 January 2016 effective on 1 January 2016, applies in respect of years of assessment commencing on or after that date]

(b)     ……….

 

(bA)  a deduction is allowed in determining the taxable income of the risk policy fund of an amount equal to the taxable income before allowing a deduction under this paragraph: Provided that the risk policy fund is deemed not to have incurred any assessed loss during the year of assessment;

[Paragraph (bA) inserted by section 47(1)(o) of Act 43 of 2014 and substituted by section 46(1)(c) of Act 17 of 2017 deemed effective on 1 January 2016 and applicable in respect of years of assessment commencing on or after that date – effective date in terms of section 46(3) of Act 17 of 2017 as substituted by section 114(1)(b) of Act 23 of 2018)]

(c)     ……….

(d)     any amount required to be transferred –

(i)      to the corporate fund in terms of the provisions of subsection (7)(a) shall be included in the income of the corporate fund; and

(ii)     from the corporate fund in terms of the provisions of subsection (7)(b) shall not be deducted from the income of the corporate fund,

for purposes of determining the taxable income of such fund for the year of assessment in respect of which the value of liabilities in relation to its policyholder funds or risk policy fund was redetermined in terms of that subsection: Provided that where any amount is transferred from the corporate fund to any policyholder fund or risk policy fund as contemplated in subparagraph (ii), any subsequent transfers from the policyholder fund or risk policy fund to the corporate fund of any amounts which in the aggregate do not exceed the total amount of such transfer, shall not be included in the income of the corporate fund in terms of the provisions of subparagraph (i) of this paragraph;

[Words following subparagraph (ii) substituted by section 47 of Act 43 of 2014 effective on 1 January 2016]

(e)     subject to the provisions of paragraphs (a)(iii) and (bA), no amount transferred to or from the corporate fund in terms of the provisions of subsection (7) shall be deducted from or included in the income of the policyholder fund or risk policy fund from or to which such amount was transferred, as the case may be;

[Paragraph (e) substituted by section 47 of Act 43 of 2014 effective on 1 January 2016]

(f)      the amount of any transfer contemplated in subsection (6) or (8) shall not be deducted from the income of the fund from which it is transferred and shall not be included in the income of the fund to which it is transferred;

(g)

 

(i)      premiums and claims in respect of a policy entered into between that insurer and a person other than a resident other than premiums and claims in respect of a risk policy;

(ii)     premiums and reinsurance claims received and claims and reinsurance premiums paid in respect of policies, other than policies contemplated in subparagraph (i) or risk policies;

shall be disregarded: Provided that where an amount in respect of a claim is received by or accrues to an insurer in respect of a policy (other than a policy that would have constituted a risk policy had that policy 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 policy an amount equal to that claim less the aggregate amount of premiums incurred or paid in terms of that policy which relates to that claim;

 [Paragraph (g) amended by section 62 of Act 22 of 2012 effective on 1 January 2013 and section 47 of Act 43 of 2014 effective on 1 January 2016 – date of operation section 47 of Act 43 of 2014 as substituted by section 152 of Act 25 of 2015 – substituted by section 47 of Act 43 of 2014 effective on 1 January 2016 and section 53 of Act 25 of 2015 effective on 1 January 2016]

(h)     no amount may be deducted, other than in the corporate fund or risk policy fund, by way of an allowance in respect of an asset as defined in the Eighth Schedule other than a financial instrument.

[Paragraph (h) added by section 62 of Act 22 of 2012 and substituted by section 77 of Act 31 of 2013 and section 50 of Act 15 of 2016 effective on 1 January 2016, applies in respect of years of assessment commencing on or after that date]

(12)   In the allocation of any receipt, accrual, asset, expenditure, liability or payment to any fund contemplated in subsection (4), an insurer shall, when establishing such fund and at all times thereafter-

(a)     to the extent to which such receipt, accrual, asset, expenditure, liability or payment relates exclusively to business conducted by it in any one fund, allocate such receipt, accrual, asset, expenditure, liability or payment to that fund; and

(b)     to the extent to which such receipt, accrual, asset, expenditure, liability or payment does not relate exclusively to business conducted by it in any one fund, allocate such receipt, accrual, asset, expenditure, liability or payment in a manner which is consistent with and appropriate to the manner in which its business is conducted.

[Subsection (12) substituted by section 47 of Act 43 of 2014 and section 50 of Act 15 of 2016 effective on 1 January 2017, applies in respect of years of assessment commencing on or after that date]

(13)   ……….

(13A)

(a)     Notwithstanding section 23(e), in the determination of the taxable income derived by an insurer in respect of its risk policy fund in respect of any year of assessment, there shall be allowed as a deduction from the income of the risk policy fund an amount equal to the value of liabilities for the year of assessment in respect of risk policies.

[Paragraph (a) substituted by section 46 of Act 17 of 2017 effective on 1 January 2016, applies in respect of years of assessment commencing on or after that date]

(b)     Any amount deducted in terms of paragraph (a) during any year of assessment shall be included in the income of the risk policy fund in the following year of assessment.

[Subsection (13A) added by section 47 of Act 43 of 2014 effective on 1 January 2016]

(13B)

(a)    An insurer may elect that all policies or one or more classes of policies that share substantially similar contractual rights and obligations that would have constituted risk policies under paragraph (a) of the definition of ‘risk policy’ in subsection (1) had those policies been issued during any year of assessment commencing on or after 1 January 2016 be allocated to the risk policy fund with effect from the first day of the year of assessment commencing on or after 1 January 2016, which election-

(i)      is binding for the duration of the policies in respect of which the election is made; and

(ii)     must be in a manner and form as the Commissioner may prescribe.

(b)     Assets with a value equal to the value of liabilities, as determined at the end of the previous year of assessment in respect of policies allocated to the risk policy fund in terms of paragraph (a), must be allocated to the risk policy fund with effect from the first day of the year of assessment commencing on or after 1 January 2016.

(c)     The amount of assets as contemplated in paragraph (b) shall not be deducted from the income of the policyholder fund from which it is transferred and shall not be included in the income of the risk policy fund to which it is transferred.

(d)     Where as a result of the election as contemplated in paragraph (a) an asset as defined in paragraph 1 of the Eighth Schedule, other than an asset that is trading stock, is disposed of by the policyholder fund to a risk policy fund-

(i)      the policyholder fund that disposes of that asset must be deemed to have disposed of that asset for an amount equal to the base cost of that asset on the date of that disposal; and

(ii)     the policyholder fund that disposes of that asset and the risk policy fund that acquires that asset must, for purposes of determining any capital gain or capital loss by the risk policy fund that acquires that asset in respect of a disposal of that asset, be deemed to be one and the same person with respect to-

[Word preceding item (aa) substituted by section 50 of Act 15 of 2016 effective on 19 January 2017]

(aa)   the date of acquisition of that asset by the policyholder fund that disposes of that asset and the amount and date of incurral of any expenditure by the policyholder fund that disposes of that asset in respect of that asset allowable in terms of paragraph 20 of the Eighth Schedule; and

(bb)   any valuation of that asset effected by the policyholder fund of that asset as contemplated in paragraph 29(4) of the Eighth Schedule.

(e)     Where as a result of the election as contemplated in paragraph (a) a policyholder fund disposes of an asset that is held as trading stock to a risk policy fund that acquires that asset as trading stock-

(i)      that asset must be deemed to have been disposed of in an amount equal to the amount taken into account in terms of section 11(a) or 22(1) or (2) in respect of that asset by the policyholder fund; and

(ii)     the policyholder fund and the risk policy fund must, for purposes of determining any taxable income derived by the risk policy fund, be deemed to be one and the same person with respect to the date of acquisition of that asset and the amount and date of incurral of any cost or expenditure incurred in respect of that asset as contemplated in section 11(a) or 22(1) or (2).

[Subsection (13B) inserted by section 53 of Act 25 of 2015 effective on 1 January 2016]

(14)   The amount referred to in the definition of adjusted IFRS value in respect of the phasing-in amount is in respect of-

(a)     the first year of assessment commencing on or after 1 January 2023, 83.3 per cent of the phasing-in amount;

[Paragraph (a) substituted by section 15(1)(c) of Act 20 of 2022 effective on 1 January, 2023 and applicable in respect of years of assessment commencing on or after that date]

(b)     the second year of assessment commencing on or after 1 January 2023, 66.7 per cent of the phasing-in amount;

[Paragraph (b) substituted by section 15(1)(c) of Act 20 of 2022 effective on 1 January, 2023 and applicable in respect of years of assessment commencing on or after that date]

(c)     the third year of assessment commencing on or after 1 January 2023, 50 per cent of the phasing-in amount;

[Paragraph (c) substituted by section 15(1)(c) of Act 20 of 2022 effective on 1 January, 2023 and applicable in respect of years of assessment commencing on or after that date]

(d)     the fourth year of assessment commencing on or after 1 January 2023, 33.3 per cent of the phasing-in amount; and

[Paragraph (d) substituted by section 15(1)(c) of Act 20 of 2022 effective on 1 January, 2023 and applicable in respect of years of assessment commencing on or after that date]

(e)     the fifth year of assessment commencing on or after 1 January 2023, 16.7 per cent of the phasing-in amount:

[Paragraph (e) substituted by section 15(1)(c) of Act 20 of 2022 effective on 1 January, 2023 and applicable in respect of years of assessment commencing on or after that date]

Provided where an insurer ceases to conduct business during any year of assessment contemplated in paragraphs (a) to (e), the amount referred to in the definition of “adjusted IFRS value” in respect of the phasing­in amount in respect of that year of assessment must be nil.

[Sub­section (14) deleted by section 52 of Act 7 of 2010, added by section 50(1)(h) of Act 15 of 2016, as amended by section 113(1)(a) of Act 23 of 2018, and amended by section 34(c) of Act 34 of 2019]

(15)   For the purposes of subsection (14) “phasing-in amount” in relation to a policyholder fund or a risk policy fund means—

(a)     the amount by which the ‘value of liabilities’ amount determined at the end of the latest year of assessment commencing on or after 1 January 2022, but before 1 January 2023, less the amounts for premium debtors and policy loans determined in accordance with IFRS as reported by the insurer to shareholders in the audited annual financial statements at the end of that year of assessment, that reduce the amount of policy liabilities had IFRS 17 been applied, exceeds the ‘value of liabilities’ amount had IFRS 17 and the definitions of ‘adjusted IFRS value’ and ‘value of liabilities’ as amended by the Taxation Laws Amendment Act, 2022, been applied at the end of that year of assessment; or

[Paragraph (a) substituted by section 32(1)(c) of Act 17 of 2023 effective on 1 January, 2023 and applicable in respect of years of assessment commencing on or after that date]

(b)     the amount by which the ‘value of liabilities’ amount had IFRS 17 and the definitions of ‘adjusted IFRS value’ and ‘value of liabilities’ as amended by the Taxation Laws Amendment Act, 2022, been applied at the end of the latest year of assessment commencing on or after 1 January 2022, but before 1 January 2023, plus the amounts for premium debtors and policy loans determined in accordance with IFRS as reported by the insurer to shareholders in the audited annual financial statements at the end of that year of assessment, that reduce the amount of policy liabilities had IFRS 17 been applied, exceeds the ‘value of liabilities’ amount determined at the end of that year of assessment:

[Paragraph (b) substituted by section 32(1)(c) of Act 17 of 2023 effective on 1 January, 2023 and applicable in respect of years of assessment commencing on or after that date]

Provided that for the purposes of determining the phasing-in amount in terms of this subsection, symbols “PF” and “PT” in the definition of “adjusted IFRS value” must be disregarded.

[Subsection (15) deleted by section 23(b) of Act 20 of 2006, added by section 50(1)(h) of Act 15 of 2016 (as amended by section 113(1)(a) of Act 23 of 2018 effective date in section 50(2) of Act 15 of 2016 as substituted by section 113(1)(b) of Act 23 of 2018), substituted by section 46(1)(e) of Act 17 of 2017 (effective date in section 46(2) of Act 17 of 2017 as substituted by section 114(1)(a) of Act 23 of 2018), amended by section 51 of Act 23 of 2018 and substituted by section 15(1)(d) of Act 20 of 2022 effective on 1 January, 2023 and applicable in respect of years of assessment commencing on or after that date]

(16)   For purposes of this section, other than for the purposes of subsection (15), ‘asset’ excludes-

(a)     negative liabilities;

(b)     policies of reinsurance;

(c)     a deferred tax asset;

(d)     goodwill; or

(e)     any amount of deferred acquisition costs determined in accordance with IFRS as annually reported by the insurer to shareholders in the audited financial statements,

recognised as an asset in accordance with IFRS as annually reported by the insurer to shareholders in the audited financial statements.

[Subsection 16 deleted by section 23 of Act 20 of 2006, re-inserted by section 50 of Act 15 of 2016 and amended by section 46 of Act 17 of 2017 effective on 1 July 2018, and applies in respect of years of assessment ending on or after that date – effective date in terms of section 46(2) of Act 17 of 2017 as substituted by section 114(1)(a) of Act 23 of 2018]