[Section 28 heading substituted by section 61(1)(a) of the Taxation Laws Amendment Act, 2012 (Act No. 22 of 2012) - effective 1 January 2013)]
(1) For the purposes of this section—
"branch policy"
means a policy contemplated in paragraph (c) of the definition of ‘short-term policy’ that is also a long-term policy as defined in section 1 of the Long-term Insurance Act;
[Definition inserted by section 33(1)(a) of the Taxation Laws Amendment Act, 2019 (Act No. 34 of 2019), GG 42951, dated 15 January 2020]
"premium"
means a premium as defined in the Short-term Insurance Act;
"Short-term Insurance Act"
[Definition deleted by section 76(1)(a) of the Taxation Laws Amendment Act, 2013 (Act No. 31 of 2013), GG 37158, dated 12 December 2013]
"short-term insurance business"
means—
| (a) | short-term insurance business as defined in the Short-term Insurance Act; |
| (b) | micro-insurance business as defined in section 1 of the Insurance Act; or |
| (c) | business conducted by a foreign reinsurer as contemplated in paragraph (c) of the definition of "short-term insurer"; |
[Definition substituted by section 50(1)(a) of the Taxation Laws Amendment Act, 2018 (Act No. 23 of 2018), GG 42172, dated 17 January 2019 - effective 1 July 2018 (section 50(2)]
"short-term insurer"
means—
| (a) | a company that is licensed under the Insurance Act and is conducting non-life insurance business as defined in that Act; |
| (b) | a micro-insurer as defined in section 1 of the Insurance Act; or |
| (c) | a foreign reinsurer conducting insurance business through a branch in the Republic in terms of section 6 of the Insurance Act; |
[Definition (a) substituted by section 21(1)(a) of the Taxation Laws Amendment Act, 2021 (Act No. 20 of 2021), Notice No. 770, GG45787, dated 19 January 2022]
"short-term policy"
means—
| (a) | a short-term policy as defined in the Short-term Insurance Act; |
| (b) | a policy issued by a micro-insurer as defined in section 1 of the Insurance Act; or |
| (c) | a policy issued by a foreign reinsurer as contemplated in paragraph (c) in the definition of "short-term insurer". |
[Definition substituted by section 50(1)(c) of the Taxation Laws Amendment Act, 2018 (Act No. 23 of 2018), GG 42172, dated 17 January 2019 - effective 1 July 2018 (section 50(2)]
| (1A) | [Section 28(1A) deleted by section 33(a) of the Taxation Laws Amendment Act, 2000 (Act No. 30 of 2000)] |
| (1B) | [Section 28(1B) inserted by section 33(a) of the Taxation Laws Amendment Act, 2000 (Act No. 30 of 2000)] |
| (1C) | [Section 28(1C) inserted by section 33(a) of the Taxation Laws Amendment Act, 2000 (Act No. 30 of 2000)] |
| (2) | For the purpose of determining the taxable income derived during a year of assessment by any short-term insurer from carrying on short-term insurance business— |
[Words preceding section 28(2)(a) substituted by section 50(1)(d) of the Taxation Laws Amendment Act, 2018 (Act No. 23 of 2018), GG 42172, dated 17 January 2019 - effective 1 July 2018 (section 50(2)]
| (a) | a premium received by or accrued to that person in respect of a short-term policy issued by that short-term insurer shall be deemed to be— |
| (i) | an amount equal to the sum of insurance revenue for insurance contracts and net earned premiums for investment contracts, which are determined in accordance with IFRS as reported by the insurer to shareholders in the audited financial statements, other than any reinsurance due to a cell owner as contemplated in the definition of ‘cell structure’ in section 1 of the Insurance Act, in respect of ‘third party risks’ as defined in that section of that Act, which is included in that insurance revenue in accordance with IFRS; and |
| (ii) | premium income earned in relation to an investment contract entered into by a ‘cell captive insurer’ as defined in section 1 of the Insurance Act in respect of ‘first party risks’ as defined in that section of that Act, which does not form part of amounts contemplated in subparagraph (i); |
[Section 28(2)(a) substituted by section 14(1)(a) of the Taxation Laws Amendment Act, 2022 (Act No. 20 of 2022), Notice No. 1541, GG47826, dated 5 January 2023 - comes into operation on 1 January 2023 and applies in respect of years of assessment commencing on or after that date (section 14(2))]
| (b) | [Section 28(2)(b) deleted by section 14(1)(b) of the Taxation Laws Amendment Act, 2022 (Act No. 20 of 2022), Notice No. 1541, GG47826, dated 5 January 2023 - comes into operation on 1 January 2023 and applies in respect of years of assessment commencing on or after that date (section 14(2))] |
| (c) | an amount of expenditure payable by that short-term insurer in respect of any claim in terms of a short-term policy— |
| (i) | may be deducted in terms of section 11(a) to the extent that the amount has been paid by that short-term insurer; and |
| (ii) | to the extent that the amount has been paid by the short-term insurer, sections 23(c) and 23H shall not apply to that expenditure; and |
| (d) | section 23H shall not apply to expenditure (other than expenditure contemplated in paragraph (c)) incurred in respect of— |
| (i) | a short-term policy issued by that short-term insurer; or |
| (ii) | a policy of reinsurance if that short-term insurer is the holder of that policy; |
| (e) | [Section 28(2)(e) deleted by section 14(1)(b) of the Taxation Laws Amendment Act, 2022 (Act No. 20 of 2022), Notice No. 1541, GG47826, dated 5 January 2023 - comes into operation on 1 January 2023 and applies in respect of years of assessment commencing on or after that date (section 14(2))] |
| (3) | Subject to subsection (3A) and notwithstanding section 23(e), for the purpose of determining the taxable income derived during any year of assessment by any short-term insurer from carrying on short-term insurance business, there shall be allowed as a deduction from the income of that short-term insurer an amount equal to the sum of liabilities for incurred claims relating to short-term insurance business in respect of the policies of the insurer, net of amounts recognised in respect of reinsurance contracts for liabilities for incurred claims, which are determined in accordance with IFRS as reported by the insurer to shareholders in the audited annual financial statements. |
[Section 28(3) substituted by section 14(1)(c) of the Taxation Laws Amendment Act, 2022 (Act No. 20 of 2022), Notice No. 1541, GG47826, dated 5 January 2023 - comes into operation on 1 January 2023 and applies in respect of years of assessment commencing on or after that date (section 14(2))]
| (3A) | Notwithstanding section 23(e), for the purpose of determining the taxable income derived during any year of assessment by any foreign reinsurer conducting insurance business through a branch in the Republic in terms of section 6 of the Insurance Act in respect of a branch policy, there shall be allowed as a deduction from the income of that foreign reinsurer an amount in respect of liabilities determined in accordance with the formula— |
I = (L + LIC + DL) - DC + DR
in which formula—
| (a) | ‘I’ represents the amount to be determined; |
| (b) | ‘L’ represents the aggregate amounts of — |
| (i) | insurance contract liabilities; and |
| (ii) | investment contract liabilities; and |
| (iii) | reinsurance contract liabilities, |
reduced by—
| (aa) | insurance contract assets; |
| (bb) | reinsurance contract assets, and |
| (cc) | liability for incurred claims contemplated in paragraph (c), the amounts of which are determined in accordance with IFRS as annually reported by the insurer to shareholders in the audited annual financial statements in respect of branch policies: |
Provided that any amount that is payable to or receivable from a cell owner, referred to in the definition of ‘cell structure’ in section 1 of the Insurance Act, in respect of ‘third party risks’ as defined in that section of that Act, must be disregarded: Provided further that the amount may not be less than zero;
[Section 28(3A)(b) proviso substituted by section 31(1)(a) of the Taxation Laws Amendment Act, 2023 (Act No. 17 of 2023), Notice No. 4226, GG49894, dated 22 December 2023 - deemed to have come into operation on 1 January 2023 and applies in respect of years of assessment commencing on or after that date (section 31(2))]
| (c) | ‘LIC’ represents the amount of the liability for incurred claims determined in accordance with IFRS 17 in respect of the policies of the insurer, net of amounts recognised in reinsurance contracts for liabilities for incurred claims, which are determined in accordance with IFRS as annually reported by the insurer to shareholders in the audited annual financial statements; |
| (d) | ‘DL’ represents the amount of deferred tax liabilities, determined in accordance with IFRS as annually reported by the insurer to shareholders in the audited annual financial statements, in respect of branch policies; |
| (e) | ‘DC’ represents the amount of deferred acquisition costs determined in accordance with IFRS as annually reported by the insurer to shareholders in the audited financial statements in respect of branch policies; and |
| (f) | ‘DR’ represents the amount of deferred revenue determined in accordance with IFRS as annually reported by the insurer to shareholders in the audited financial statements in respect of branch policies. |
[Section 28(3A) substituted by section 14(1)(d) of the Taxation Laws Amendment Act, 2022 (Act No. 20 of 2022), Notice No. 1541, GG47826, dated 5 January 2023 - comes into operation on 1 January 2023 and applies in respect of years of assessment commencing on or after that date (section 14(2))]
(3B)
| (a) | Where a person transfers short-term insurance policies as part of any short-term insurance business to another short-term insurer carrying on or to be carrying on short-term insurance business, that person may for purposes of section 11(a) deduct an amount equal to liabilities on investment contracts relating to short-term insurance business and amounts of insurance liabilities relating to premiums and claims transferred to the other short-term insurer. |
| (b) | An amount contemplated in paragraph (a) must be included in the income of the short-term insurer to which the liabilities were transferred as described in paragraph (a). |
[Section 28(3B) inserted by section 21(1)(b) of the Taxation Laws Amendment Act, 2021 (Act No. 20 of 2021), Notice No. 770, GG45787, dated 19 January 2022 - comes into operation on 1 January 2022 and apply in respect of years of assessment ending on or after that date (section 21(2))]
| (3C) | For the purpose of determining the taxable income derived by any short-term insurer from carrying on short-term insurance business, the short-term insurer must, in the first year of assessment commencing on or after 1 January 2023— |
| (a) | include in its income an amount equal to the difference between amounts recoverable by that short-term insurer in respect of claims incurred under a short-term policy issued by that short-term insurer at the end of the latest year of assessment commencing on or after 1 January 2022, but before 1 January 2023, that has not been received by that short-term insurer by the end of that year of assessment; |
| (b) | deduct the liabilities for remaining coverage, net of reinsurance, calculated for the latest year of assessment commencing on or after 1 January 2022, but before 1 January 2023, had IFRS 17 been applied at the end of that year of assessment; and |
[Section 28(3C)(b) substituted by section 31(1)(b) of the Taxation Laws Amendment Act, 2023 (Act No. 17 of 2023), Notice No. 4226, GG49894, dated 22 December 2023 - deemed to have come into operation on 1 January 2023 and applies in respect of years of assessment commencing on or after that date (section 31(2))
| (c) | deduct the net amounts of insurance premium or reinsurance premium debtors, and amounts of reinsurance premium payable, taken into account in determining the liabilities for remaining coverage at the end of the latest year of assessment commencing on or after 1 January 2022, but before 1 January 2023, had IFRS 17 been applied at the end of that year of assessment. |
[Section 28(3C) inserted by section 14(1)(e) of the Taxation Laws Amendment Act, 2022 (Act No. 20 of 2022), Notice No. 1541, GG47826, dated 5 January 2023 - comes into operation on 1 January 2023 and applies in respect of years of assessment commencing on or after that date (section 14(2))]
(3D)
| (a) | For the purposes of determining the taxable income derived by any short-term insurer from carrying on short-term insurance business, there shall be allowed as a deduction from the income of that short-term insurer in respect of— |
| (i) | the first year of assessment commencing on or after 1 January 2023, 66.7 per cent of the phasing-in amount as determined under paragraph (c); and |
| (ii) | the second year of assessment commencing on or after 1 January 2023, 33.3 per cent of the phasing-in amount as determined under paragraph (c): |
Provided that where an insurer ceases to conduct business during any year of assessment contemplated in subparagraphs (i) and (ii), the amount to be deducted in respect of the phasing-in amount in respect of that year of assessment must be nil.
| (b) | For the purposes of determining the taxable income derived by any short-term insurer from carrying on any short-term insurance business, there shall be included in the income of that short-term insurer in respect of— |
| (i) | the first year of assessment commencing on or after 1 January 2023, 66.7 per cent of the phasing-in amount as determined under paragraph (d); and |
| (ii) | the second year of assessment commencing on or after 1 January 2023, 33.3 per cent of the phasing-in amount as determined under paragraph (d): |
Provided that where an insurer ceases to conduct business during any year of assessment contemplated in subparagraphs (i) and (ii), the amount to be included in respect of the phasing-in amount in respect of that year of assessment must be nil.
| (c) | For purposes of paragraph (a), ‘phasing-in amount’ means the amount by which the amount of the deduction under subsection (3) or (3A), for the latest year of assessment commencing on or after 1 January 2022, but before 1 January 2023, exceeds the amount of the deduction under subsection (3) or (3A) for the latest year of assessment commencing on or after 1 January 2022, but before 1 January 2023, had IFRS 17 and subsection (3) or (3A), as amended by the Taxation Laws Amendment Act, 2022, been applied at the end of that year of assessment, reduced by the difference between— |
| (i) | the amount of insurance premium debtors and reinsurance premium debtors; and |
| (ii) | the amount of reinsurance premiums payable, at the end of the latest year of assessment commencing on or after 1 January 2022, but before 1 January 2023, had IFRS 17 been applied, other than amounts forming part of the liability for incurred claims, and increased by the amount determined under subsection (3C)(a). |
| (d) | For purposes of paragraph (b), ‘phasing-in amount’ means the amount by which the amount of the deduction under subsection (3) or (3A) for the latest year of assessment commencing on or after 1 January 2022, but before 1 January 2023, had IFRS 17 and subsection (3) or (3A), as amended by the Taxation Laws Amendment Act, 2022, been applied at the end of that year of assessment exceeds the amount of the deduction under subsection (3) or (3A), for the latest year of assessment commencing on or after 1 January 2022, but before 1 January 2023, increased by the difference between— |
| (i) | the amount of insurance premium debtors and reinsurance premium debtors; and |
| (ii) | the amount of reinsurance premiums payable, at the end of the latest year of assessment commencing on or after 1 January 2022, but before 1 January 2023, had IFRS 17 been applied, other than amounts forming part of the liability for incurred claims, and reduced by the amount determined under subsection (3C)(a). |
[Section 28(3D) inserted by section 14(1)(e) of the Taxation Laws Amendment Act, 2022 (Act No. 20 of 2022), Notice No. 1541, GG47826, dated 5 January 2023 - comes into operation on 1 January 2023 and applies in respect of years of assessment commencing on or after that date (section 14(2))]
(4)
| (a) | The total of all amounts deducted from the income of a short-term insurer in respect of a year of assessment in terms of subsections (3), [and] (3A) and (3D)(a) shall be included in the income of that short-term insurer in the immediately following year of assessment. |
| (b) | The amount included in the income of a short-term insurer in respect of a year of assessment in terms of subsection (3D)(b) shall be deducted from the income of that short-term insurer in the immediately following year of assessment. |
[Section 28(4) substituted by section 14(1)(f) of the Taxation Laws Amendment Act, 2022 (Act No. 20 of 2022), Notice No. 1541, GG47826, dated 5 January 2023 - comes into operation on 1 January 2023 and applies in respect of years of assessment commencing on or after that date (section 14(2))]
| (5) | [Section 28(5) deleted by section 61(1)(c) of the Taxation Laws Amendment Act, 2012 (Act No. 22 of 2012) - effective 1 January 2013] |
| (6) | [Section 28(6) deleted by section 61(1)(d) of the Taxation Laws Amendment Act, 2012 (Act No. 22 of 2012)] |
| (7) | [Section 28(7) deleted by section 52(1)(e) of the Taxation Laws Amendment Act, 2015 (Act No. 25 of 2015) -deemed to have come into operation on 1 July 2018 and apply to years of assessment ending on or after that date] |
| (8) | [Section 28(8) deleted by section 52(1)(e) of the Taxation Laws Amendment Act, 2015 (Act No. 25 of 2015) -deemed to have come into operation on 1 July 2018 and apply to years of assessment ending on or after that date] |
| (9) | [Section 28(9) deleted by section 52(1)(e) of the Taxation Laws Amendment Act, 2015 (Act No. 25 of 2015) - deemed to have come into operation on 1 July 2018 and apply to years of assessment ending on or after that date] |
| (10) | [Section 28(10) deleted by section 52(1)(e) of the Taxation Laws Amendment Act, 2015 (Act No. 25 of 2015) - deemed to have come into operation on 1 July 2018 and apply to years of assessment ending on or after that date] |
| (11) | [Section 28(11) deleted by section 52(1)(e) of the Taxation Laws Amendment Act, 2015 (Act No. 25 of 2015) - deemed to have come into operation on 1 July 2018 and apply to years of assessment ending on or after that date] |
