Legal and regulatory update for the life and health insurance sector

23 Nov 2020 – IRD advised of technical changes to the OECD Common Reporting Standard (CRS) for 2021 relating to the Automatic Exchange of Information (AEOI) for Tax Purposes, which may have an impact on reporting New Zealand financial institutions. CRS reporting for the 31 March 2021 year, due to be filed with Inland Revenue by 30 June 2021, will need to comply with the new standard.

Legal and regulatory update for the life and health insurance sector

12 Nov 2020 – IRD advised that the Government has announced some changes to the Small Business Cashflow (Loan) Scheme, including extending applications for the loan, which can now be made until 31 December 2023, an extension of 3 years.

13 Nov 2020 – FMA released its Audit Quality Monitoring Report for 2020.

15 Nov 2020 – The Government announced the completion of signature of the Regional Comprehensive Economic Partnership Agreement.

16 Nov 2020 – RBNZ announced the introduction of new series and amendments to its weekly publication of Bank Customer Lending (BCL) metrics.

17 Nov 2020 – FSC advised that the RBNZ will be holding a webinar on Monday 14 December from 10:00-11:30am on insurance in relation to IFRS17 and Solvency.

Legal and regulatory update for the life and health insurance sector

25 Sept 2020 – Good Returns reports that the Australian government is set to axe responsible lending laws.

23 Sept 2020 – IRD advised that the Public Guidance Work Programme 2020-21 has now been finalised.

24 Sept 2020 – FMA released a report on its supervision activities over the past 18 months.


The development in Australia where responsible lending rules are being axed is of considerable interest. In specific terms I do not know enough about the details of the Australian lending legal and regulatory framework to comment. In general terms there are some good questions to be asked about what rules are fit for purpose in an environment with very low interest rates for borrowing and with other consumer protections and processes available. I shall take a look at that development with some interest. Given the involvement of our current Minister of Commerce and his work on predatory lending practices I doubt this is going to appear on his agenda. 

Legal and regulatory update for the life and health insurance sector

9 Sept 2020 – IRD issued guidance on the taxation of cryptoassets.

10 Sept 2020 - Financial Advice New Zealand have created a Virtual Conference/ Regional Roadshow, with the conference hosted over four regions in a different region each day over 21-24 Sept, with the Auckland event being online.

14 Sept 2020 - The Reserve Bank announced that it will be relaunching the review of the Insurance (Prudential Supervision) Act (IPSA) in October 2020. A policy paper outlining the resumption of the IPSA Review, and objectives and topics to be covered, will be published in early October. It will provide an updated overview explaining objectives, topics to be covered and an indicative timetable. At the same time, the RBNZ will release a consultation paper on principles to guide the review of Solvency Standards.

IRD changes to reinsurance tax deductibility

Inland Revenue are looking to implement changes to existing sections in the Income Tax Act 2007. DR 3, the section IRD are looking to improve, was originally designed to ensure that no deduction was available for the reinsurance of a policy unless the policy was offered here in New Zealand. However, there was a loophole which meant that some life reinsurance premiums could be excused from being taxed under the double tax agreements (DTAs). The amendment will ensure that DR 3 is widely effective.

The amendment will work to deny a deduction for a life reinsurance premium incurred under a life reinsurance policy for clients not residing in New Zealand, given that the client is not living in a country that New Zealand has a DTA with.  It is important to note that the section would not be applicable to life insurance premiums that are attributable to a deemed PE under section GB 54.

Who's on first: Income Protection Tax Update

There is a great deal of debate about tax treatment of Income Protection. Given the importance of this product as society progressively shifts towards greater dependence on living benefits from a focus on death benefits this matters. A little while ago I asked the FSC to tell me what their goal in lobbying for consistent tax treatment is. This was their response: 

  • Consistent income tax and GST treatment of income protection products.  The income tax treatment is on the current Government work programme with an Officials Issues Paper the likely next step as part of the Government Generic Tax Policy Process (“GTPP”).  The TAG will continue to lobby Tax Policy Officials for consistent GST treatment as part of this process also.

So far so good. So I blogged that, and this tax watcher on Twitter said something which shall we say contrasted with the above. 

  • "Review likely but outcome non-taxable non-deductible (AV) taxation. Existing indemnity policies are grandparented" Adding for good measure: "...years away. IRD got bigger projects on; no drive from industry to change tax treatment either"

Back in among the industry on LinkedIn JP Hale had this to say, in this case, he kind of put it differently.

  • "...the IRD has repeatedly refused to review the position over the years"

It is, of course, perfectly possible that someone is right, and the rest are wrong. But clarity in long-term planning is handy, more so when contemplating a contract which can be hard to switch or change if your health has deteriorated. This is an example of a long-term issue we should be prioritising. Meanwhile, you may find this explanatory video helpful (yes, it is the right video, requires sound, and is suitable for work). 


Taxation of Income Protection: Complexity and Risk - updated

For those advisers that like the idea of a lower, non-taxable, income protection benefit the potential for a review of the taxation of income protection adds risks, or complexity, or both. 

For example, if a future review were conducted by Inland Revenue, and the position were changed so that all IP benefits (AV, LOE, or Indemnity) are deductible and taxable then those clients with existing AV benefits may have a problem. If the tax position changes for in-force contracts then they probably need to buy extra cover. A boon, perhaps, to insurers and advisers, but difficult for some clients that have developed health problems in the meantime. Alternatively the change could apply from a certain date forward, adding to the complexity of giving advice to clients with in-force AV contracts which will remain non-deductible and non-taxable. Insurers could make like easier for advisers by allowing a one-off increase to the benefit if it is deemed to be taxable. They are only likely to be tempted to do this if there were better information and enforcement around the taxation of IP benefits.

We continue to hear of complaints that claimants do not declare their income and then discover that they have unpaid tax problems to add to their health issues. Which brings us to the other eventuality: assuming everything becomes non-deductible and non-taxable, then the reverse problem applies. Some may seek to reduce their benefits, a one-off hit to insurers. But the gains to consumers and reduced replacement ratios may be worth it. Each of these costs probably still outweigh the complexity of staying with the current situation.