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.