Section EY 28 — Income Tax Act 2007: Shareholder base other profit: profit participation policies that are existing business

EY 28 Shareholder base other profit: profit participation policies that are existing business Calculation of income (1) For an income year, a life insurer has an amount, for profit participation policies that are existing business, that is calculated using the formula–– other profit × gate (1 + gate). Definition of items in formula (2) In the formula in subsection (1),— (a) other profit is the amount calculated for the income year under subsection (4): (b) gate is the proportion of a policyholder's share of profits from the asset base that is used in the formula that calculates a transfer to the benefit of the life insurer's shareholders from the profits of the asset base, as described in paragraph (a)(iii) of the definition of profit participation policy . Formula: negative amounts and positive amounts (3) If, for an income year, the formula in subsection (1) calculates a positive amount, that amount is included as income in the life insurer’s shareholder base income. If it is a negative amount, then that amount is included as a deduction in the life insurer’s shareholder base allowable deductions. Other profit (4) For the purposes of the item other profit in subsection (2), an amount is calculated, for the income year (the current year ) for profit participation policies that are existing business, using the following formula: (premiums − premiums estimate) − (claims − claims estimate) − (closing policy liabilities − estimated closing policy liabilities). Definition of items in formula (5) In the formula in subsection (4),— (a) premiums is the amount of premiums for policies for the current year, but subtracting relevant life reinsurance premiums: (b) premiums estimate is the actuarially determined total amount of premiums that the life insurer expected, using best estimate assumptions, to receive in the current year for policies that were in force at the start of the current year or are first entered into in the current year, after subtracting the present value (net) of relevant life reinsurance premiums: (c) claims is the amount of claims for the current year, after subtracting relevant life reinsurance claims: (d) claims estimate is the actuarially determined total amount of claims that the life insurer expected, using best estimate assumptions, to receive in the current year for policies that were in force at the start of the current year or are first entered into in the current year, after subtracting the present value (net) of relevant life reinsurance claims: (e) closing policy liabilities is the total amount of policy liabilities for policies determined at the end of the current year for vested benefits after the previous year's bonus declaration: (f) estimated closing policy liabilities is the total estimated policy liabilities at the end of the current year for policies in force at the start of the current year and expected to be in force at the end of the current year, taking into account vested benefits after the previous year's bonus. The estimated policy liabilities must not take into account any future bonus declarations, and must use best estimate assumptions. Meaning of policy liabilities (6) For the purposes of subsection (5), policy liabilities means, for a policy, an actuarially determined amount that is the present value (net) of future claims, plus the present value (net) of future expenditure or loss, plus the present value (net) of future tax payments, less the present value (net) of future premiums. Relevant life reinsurance premiums and claims must be subtracted. Basis of best estimate assumptions in actuarially determining items (7) The same best estimate assumptions must be used for actuarially determining the items premiums estimate , claims estimate , and policy liabilities in this section. The assumptions may be appropriate for the start of the year, or for the end of the year, but once the choice is made between start of the year and end of the year, that basis may not be changed. Meaning of existing business (8) For the purposes of this section and section EY 29 , existing business means, for a policy, that it is–– (a) issued on or before 30 June 2009: (b) issued after 30 June 2009, if–– (i) issued on the same substantial and material terms, conditions, and bonus entitlements as profit participation policies that the life insurer issued on or before 30 June 2009, ignoring any annual increase in life insurance cover that is less than 10% or less than annual percentage change in the consumer price index: (ii) issued as the result of conversion rights in a policy issued on or before 30 June 2009: (c) the replacement of another policy (the replaced policy ) caused by a life insurer being sold, or selling or transferring its rights and obligations under the replaced policy, and–– (i) the replaced policy was existing business under this subsection; and (ii) the replaced policy and the policy have the same substantial and material terms, conditions, and bonus entitlements ignoring any annual increase in life insurance cover that is less than 10% or is less than the annual percentage change in the consumer price index. Defined in this Act: actuarially determined , amount , best estimate assumptions , claim , existing business , income year , life insurance , life insurance policy , life insurer , life reinsurance , premium , present value (net) , profit participation policy Section EY 28: substituted, on 1 July 2010, by section 190(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34). Section EY 28(8) existing business paragraph (a): amended (with effect on 1 July 2010), on 2 November 2012, by section 54(1)(a) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88). Section EY 28(8) existing business paragraph (b)(ii): amended (with effect on 1 July 2010), on 2 November 2012, by section 54(1)(b) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88). Section EY 28(8) existing business paragraph (c): inserted (with effect on 1 July 2010), on 2 November 2012, by section 54(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).