TAX ONINSURANCE

Hokitika Guardian, 29 August 1930, Page 8

TAX ONINSURANCE

“FOREIGN” OFFICES’ VIEWS. A BUDGET SURVEY. “SINGLED OUT FOR. ATTACK.” “All Governments have recognised tjiat institutions of thrift should be encouraged, and' savings banks, friendly societies, and provident funds, are exempt, while mutual life societies alone are singled out for attack,”' states a survey of the Budget proposals issued by the Life Insurance Officers’ Association. It is pointed out that friendly societies mainly provide against the temporary loss of earnings of the bread winner through sickness, while life ass>irance provides for the total loss of “arnings by the death of the breadwinner.

, The sAifement continues :—“lt is mentioned ip the Budget speech that the life insurance, companies have been able to increase greatly the. bonuses, paid. The root of all taxation proposals in relation' to-li.fe insurance mstite ptions is a misconception of the nat-, ure of the surplus ; and of the bonuses allotted to the policies. In the administration of these institutions the object it to. give the policy-holder the maximum amount of life insurance foi' the premiums paid. It is not possible to fix the maximum, at the outset owing to the unceftainity of the factors involved— i.e., the rates of mortality interest, and expense. The policy' holder is asked to pay a premium known to be more than sufficient to provide the initial amount of in»urance. A margin, of safety is thus provided.

A SO-CALUID SURPU.yS. “The whple administration olf thp. institutions is .directed to use as. little of this margin as possible, and the purpose of the periodical ipyestijgatipns, is to. ascertain how much of this margin has been preserved, for the benefit of those to whom, it belongs—the policyholders. • Thie! amount preserved/ is the, sorcalled surplus ,ahd v thp sq, -.called bonus off addition to. the nmp.unt of the assurance simply represents the periodical adjustment iii. the; ' light of experience of the amount of the assui> ance to the. amount of premium pai d-f a conception far removed; from that of profit. “In the past our interest, from investments has been taxed, a method of taxation, approved by the English Royal Commissioh oii Income Tax in 1920. This income has beem diminished, for taxation purposes by an amount equal to 2 per ceut. of our investments, in New Zealwand allowed in consideration of the fa,ct that our premiums are necessarily based, on the assumption that Wp will earn interest tp enable us to meet our obligations under the policy contracts. prinpiple pf taxation pn investments is also., recognised; throughout New Zealand by the fixed rate on local body debentures; some of which'are 2s 6d in the £1 and others 4s 6d in the £l.

• ‘UNSOUND PROPOSAL." -V ' - . ' ' 1 “The proposal to tax the life insurance companies on 25 per cent, of their premium income announced in the Budget speech was- fundamentally unsound, and as a result of our representations the Prime' Minister has' adopted an. entirely new basis of which we have iiad no advice until to-day, August The question of the amount of surplus in New Zealand is one for our actuaries at our head office to decide, but from a rough estimate we can cay that this means a very' large increase m taxation to the “foreign life companies and one which by the nature of our business canpot be passed qn t 9 our policy-holders. . ■'•

“Although we consider that we, should, be totally exempt from taxation ive are prepared to pay some temporary increase in.viOw of the present financial position of the Dominion, fn this con*, nection we would point put that if there is no change in the method ol taxation the five foreign insurance com panies forming the Life Officers’ Association would in addition to the normal increase for the year be asked for a sum of about £6500 as the 10 per cent super tax and the extra stamp tax and license fee, which will be more than their fair share, of the temporary taxation required. This would make a tax of about £31,500 this year. “A rough estimate shows that at the rate of 2e 3d in the £ the offices mentioned above will have to pay this year on the pew basis a sum of £93,7001 This is nearly 300 per cent, of the sum of £31)500 mentioned above. We contend that the rate of 2s 3d in the £ is a far too high rate for life insurance companies to pay with taxation on the ‘surplus,’ and consider that it should no the higher than Is in the £ returning *,43,650.

“We would point out that practically pH holders of industrial department policies (numbering about 250,000) as well as a large proportion, of ordinary/ department policy-holders, are not asked for income tax at all, and should not therefore be taxed indirectly through; their life, policies. In addition to.this income tax we will be caura upon to pay extra land tax on our properties, which are assessed at a high graduated rate owing to the; life officers’ ownership of proporties through*-

out New Zealand.’ Land tax returns. I for four of the above mentioned companies show that an additional tax of £BOOO will be paid; this year compared with the amount which should be paid ■, if each property Were assessed separately.” ■